Liquidity, Efficiency and the 2007-2008 Global Financial Crisis

Sergio Bianchi and Massimiliano Frezza ()
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Massimiliano Frezza: QuantLAB, Deptartment of Economics and Law, University of Cassino and Southern Lazio

Annals of Economics and Finance, 2018, vol. 19, issue 2, 375-404

Abstract: We focus on the relationship between liquidity and market efficiency, and investigate the behavior of three stock market indexes (S&P500, Nasdaq and DAX) before, during and after the global financial crisis. We find that, once accounted for the scale, the two attributes are strongly related and empirical evidence is provided that, when market efficiency is measured through the pointwise regularity of the price, it is a better forecaster of illiquidity than vice versa. We also find that the variation of the illiquidity premium declined to zero during the unconventional interventions that the Federal Reserve launched to face the credit crunch.

Keywords: Liquidity; Efficiency; Pointwise Regularity; Global Financial Crisis (search for similar items in EconPapers)
JEL-codes: C22 C58 F37 G01 (search for similar items in EconPapers)
Date: 2018
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