Liquidity risk and contagion for liquid funds

Serge Darolles, Jeremy Dudek and Gaelle Le Fol
Additional contact information
Jeremy Dudek: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: Fund managers face liquidity problems but they have to distinguish the market liquidity risk implied by their assets and the funding liquidity risk. This latter is due to both the liquidity mismatch between assets and liabilities and the redemption risk due to the possible outflows from clients. The main contribution of this paper is the analysis of contagion looking at common market liquidity problems to detect funding liquidity problems. Using the CDS Bond Spread basis as a liquidity indicator and a state space model with time-varying volatility specification, we show that during the 2007-2008 financial crisis, there exist pure contagion effects both in terms of price and liquidity on the emerging sovereign debt market. This result has strong implication since the main risk for an asset manager is to get stuck with an unwanted position due to a dry-up of market liquidity.

Keywords: Liquidity; Sovereign Debt Market; Emerging Markets; Switching models; Contagion Effects; Regime; Liquidity Risk Management (search for similar items in EconPapers)
Date: 2014-05
Note: View the original document on HAL open archive server: https://hal.science/hal-01632776v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in 31st International French Finance Association Conference, AFFI 2014, May 2014, Aix-en-Provence, France

Downloads: (external link)
https://hal.science/hal-01632776v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01632776

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().