Spillover effects between liquidity risks through endogenous debt maturity

Xu Wei, Xiao Xiao, Yi Zhou and Yimin Zhou

Journal of Financial Markets, 2023, vol. 64, issue C

Abstract: We construct a model of debt maturity structure and show how a firm trades off between the costs of market liquidity risk and rollover risk. We show that an exogenous shock that directly increases one type of liquidity risk would induce the firm to alter its debt maturity structure and partially offset the impact of the shock by raising its exposure to the other type of risk (i.e., spillover effects exist). We also show that the spillover from market liquidity risk (rollover risk) to rollover risk (market liquidity risk) is more (less) pronounced during recessions or in competitive markets.

Keywords: Endogenous debt maturity; Market liquidity risk; Rollover risk; Spillover effects (search for similar items in EconPapers)
JEL-codes: G12 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:64:y:2023:i:c:s1386418123000125

DOI: 10.1016/j.finmar.2023.100814

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