Flight to Liquidity on the Tokyo Stock Exchange during the 2008 Share Market Crashes

Brooke Alexandra Maeda
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Brooke Alexandra Maeda: Department of Economics, School of Economics, Osaka University, 1-7 Machikaneyama, Toyonaka, Osaka 560-0043, Japan.

International Journal of Economics and Financial Issues, 2015, vol. 5, issue 3, 790-801

Abstract: This paper explores the existence of the flight-to-liquidity phenomenon for shares which are traded on the Tokyo Stock Exchange (TSE) during share market crashes. Using data from the First section of the TSE, the existence of a flight-to-liquidity during the 2008 share market crashes is clearly documented. The TSE differs from other major exchanges as price limit rules restrict the daily price movements of shares. It provides a unique setting to test if a flight-to-liquidity occurs even when price limit rules may reduce market liquidity and delay price discovery. This study shows that despite having different trading rules, a flight-to-liquidity occurred during times of market uncertainty as investors were less willing to hold illiquid assets and rushed to sell these assets. The results are robust for smaller crash days and for different proxies of illiquidity.

Keywords: Crash; Flight-to-Liquidity; Share Returns (search for similar items in EconPapers)
JEL-codes: G01 G12 G14 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2015-03-20

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