Has Liquidity Risk in the Treasury and Equity Markets Increased?

Tobias Adrian, Michael Fleming, Daniel Stackman and Erik Vogt

No 20151006a, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Market participants have argued that market liquidity has deteriorated since the financial crisis. However, inspection of common metrics such as bid-ask spreads, market depth, and price impact do not show pronounced reductions in liquidity compared with precrisis levels. In this post, we argue that recent changes in liquidity conditions may best be described in terms of heightened liquidity risk, as opposed to general declines in liquidity levels. We propose a measure that shows liquidity risk has risen in equity and Treasury markets and discuss some factors behind the increase.

Keywords: volatility risk; liquidity risk; market liquidity (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2015-10-06
New Economics Papers: this item is included in nep-mst
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