Liquidity supply by broker-dealers and real activity

Jonathan Goldberg

Journal of Financial Economics, 2020, vol. 136, issue 3, 806-827

Abstract: This paper develops a novel measure of liquidity supply by broker-dealers using data on their trading positions in Treasury bonds and the deviations of Treasury yields from a fitted yield curve. The measure is informative about liquidity in other asset classes, including corporate bonds and equities. A decline in liquidity supply predicts reduced debt issuance and investment by nonfinancial firms and reduced aggregate economic activity. The sensitivity of liquidity, issuance, and investment to broker-dealers’ liquidity supply is larger for firms with low credit quality. The results suggest that securities intermediaries are important for understanding liquidity commonality, corporate financing, and real activity.

Keywords: Broker-dealers; Treasury noise; Nonfinancial firms; Real effects of securities intermediation (search for similar items in EconPapers)
JEL-codes: E44 G23 G32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:136:y:2020:i:3:p:806-827

DOI: 10.1016/j.jfineco.2019.11.006

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