The Asymmetric Impact of Funding Liquidity Risk on the Volatility of Stock Portfolios during the COVID-19 Crisis

Baris Kocaarslan and Ugur Soytas
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Baris Kocaarslan: Department of Business Administration, Middle East Technical University, 06800 Ankara, Turkey

Sustainability, 2021, vol. 13, issue 4, 1-12

Abstract: In this study, we identify economic transmission channels through which changes in funding liquidity conditions in interbank markets asymmetrically affect volatilities of stock portfolios during the COVID-19 crisis. For the purpose of this study, the quantile regression approach is utilized. Controlling for macroeconomic factors, we document that volatilities of high-risk portfolios increase more in response to a deterioration in funding liquidity conditions compared to less risky portfolios. More importantly, this increase intensifies in high-volatility periods of high-risk portfolios, which implies the impact is stronger during uncertain economic environments, such as the one caused by the COVID-19 outbreak.

Keywords: funding liquidity; volatility; asymmetric relationship; COVID-19; quantile regression (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:13:y:2021:i:4:p:2286-:d:502552

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