The dynamics and determinants of liquidity connectedness across financial asset markets

Ping-Xin Liew, Kian-Ping Lim and Kim-Leng Goh

International Review of Economics & Finance, 2022, vol. 77, issue C, 341-358

Abstract: We quantify the degree of liquidity connectedness across stock, bond, money and foreign exchange markets in Malaysia. The liquidity connectedness index from the time-varying parameter vector autoregression model reveals sensitivity to extreme market events but low cross-asset liquidity contagion on average, implying negligible risk of a systemic liquidity dry-up in the Malaysian financial markets. Further analysis finds that cross-asset liquidity connectedness is explained by global market uncertainty, perceived credit risk as well as international crude oil prices. The influence of external factors underscores the needs for small open economy like Malaysia to expand market surveillance to monitor cross-border liquidity shocks.

Keywords: Liquidity connectedness; Liquidity spillovers; Time-varying parameter VAR; Financial markets; Malaysia (search for similar items in EconPapers)
JEL-codes: C32 E43 G12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:77:y:2022:i:c:p:341-358

DOI: 10.1016/j.iref.2021.10.003

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