Investor sentiment and evaporating liquidity during the financial crisis

Junmao Chiu, Huimin Chung, Keng-Yu Ho and Chih-Chiang Wu

International Review of Economics & Finance, 2018, vol. 55, issue C, 21-36

Abstract: This study examines how investor sentiment affected equity liquidity and trading behavior during the financial crisis of 2007–2008. Using intraday data on equity index and financial ETFs, we show significant asymmetric response to investor sentiment on quoted spread, market depth, asymmetric depth, and net buying pressure. We also document that funding constraints can further increase the asymmetric impact of investor sentiment on liquidity and trading behavior. Our results can be explained by the psychological bias of negativity and help investors and risk management practitioners comprehensively understand why and how the evaporation of liquidity accelerates during the financial crisis.

Keywords: Investor sentiment; Equity liquidity; Net buying pressure; Financial crisis; Funding constraints (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056016301186
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:55:y:2018:i:c:p:21-36

DOI: 10.1016/j.iref.2018.01.006

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().