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Funding liquidity, market liquidity and TED spread: A two-regime model

Kris Boudt, Ellen C.S. Paulus and Dale Rosenthal

Journal of Empirical Finance, 2017, vol. 43, issue C, 143-158

Abstract: We study the effect of market liquidity on equity-collateralized funding, accounting for endogeneity. Theory suggests market liquidity can affect funding liquidity in stabilizing and destabilizing manners. Using a new proxy for equity-collateralized funding liquidity of S&P 500 stocks over the period of July 2006–May 2011, we show that we can separate the two regimes using the yield spread of Eurodollars over T-bills (TED spread) and that a regime switch occurs near a TED spread of 48 basis points.

Keywords: Equity-collateralized funding liquidity; Market liquidity; Two-regime model; Financial distress (search for similar items in EconPapers)
Date: 2017
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Working Paper: Funding liquidity, market liquidity and TED spread: A two-regime model (2013) Downloads
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DOI: 10.1016/j.jempfin.2017.06.002

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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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