Effects of the international regulatory reforms over market liquidity of Mexican sovereign debt

Jose Lara, Fabrizio López-Gallo, Stefano Lord and Alberto Romero

Journal of Financial Stability, 2021, vol. 52, issue C

Abstract: In this paper we document empirical evidence regarding the unintended consequences of financial regulatory changes on market liquidity of Mexican sovereign debt. We find mixed impacts: in the context of Basel 2.5, Basel III and the Liquidity Coverage Ratio, we find negative effects, while in the case of the Dodd-Frank Act and the Volcker Rule we find positive effects. The difference in results can be explained by the fact that some of the regulatory changes mainly imposed additional constraints on government debt holdings, while others were designed to enhance transparency and thus reduce uncertainty as well as information asymmetries. Moreover, our estimates suggest that the aggregate effect of the regulatory changes decreased the weekly turnover ratio of Mexican sovereign debt securities by 18 percent. Our results hold under different liquidity measures and different econometric specifications.

Keywords: Unintended effects; Regulation; Market liquidity; Sovereign debt; Emerging market economies (search for similar items in EconPapers)
JEL-codes: E58 G12 G18 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:52:y:2021:i:c:s1572308920301091

DOI: 10.1016/j.jfs.2020.100807

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