Liquidity Contagion. The Emerging Sovereign Debt Markets example

Serge Darolles, Jeremy Dudek and Gaelle Le Fol
Additional contact information
Jeremy Dudek: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: Financial markets are today so interconnected that they are fragile to contagion. Massive investment funds with very short horizons in -and out- flows can generate contagion effects between markets. Since 2010, investors are willing to get a liquid exposure to the EMsovereign debt. As a consequence, some asset management firms started to propose products to track the performance of this asset class. However in that case, the fund manager faces a mismatch of liquidity between assets and liabilities and needs some tools to manage the liquidity of his investments. The main contribution of this paper is the analysis of contagion looking at common market liquidity problems to detect funding liquidity problems. Using the CDS Bond Spread basis as a liquidity indicator and a state space model with time-varying volatility specification, we show that during the 2007-2008 financial crisis, there exist pure contagion effects both in terms of price and liquidity on the emergings overeign debt market.This result has strong implication since the main risk for an asset manager is to get stuck with an unwanted position due to a dry-up of market liquidity.

Keywords: Liquidity; Regime Switching models; Contagion Effects; Emerging Markets; Sovereign Debt Market; Liquidity Risk Management (search for similar items in EconPapers)
Date: 2013-05
Note: View the original document on HAL open archive server: https://hal.science/hal-01632782v1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in 30th International French Finance Association Conference, May 2013, Lyon, France

Downloads: (external link)
https://hal.science/hal-01632782v1/document (application/pdf)

Related works:
Working Paper: Liquidity Contagion. The Emerging Sovereign Debt Markets example (2012)
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:hal:journl:hal-01632782

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().