Funding liquidity and equity liquidity in the subprime crisis period: Evidence from the ETF market

Junmao Chiu, Huimin Chung, Keng-Yu Ho and George H.K. Wang

Journal of Banking & Finance, 2012, vol. 36, issue 9, 2660-2671

Abstract: Using index and financial exchange-traded funds (ETFs), this study explores the relation between funding liquidity and equity liquidity during the subprime crisis period. Our empirical results show that a higher degree of funding illiquidity leads to an increase in bid–ask spread and a reduction in both market depth and net buying imbalance. Such findings indicate that an increase in funding liquidity can improve equity liquidity, with a stronger effect for the financial ETFs than for the index ETFs. Our study provides a better overall understanding of the effect of the liquidity–supplier funding constraint during the subprime crisis period.

Keywords: Funding liquidity; Equity liquidity; Collateral market; Interbank market; Subprime crisis (search for similar items in EconPapers)
JEL-codes: G00 G01 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:9:p:2660-2671

DOI: 10.1016/j.jbankfin.2012.06.003

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