Funding liquidity, market liquidity and TED spread: A two-regime model

Kris Boudt, Ellen C.S. Paulus () and Dale Rosenthal
Additional contact information
Ellen C.S. Paulus: London Business School

No 244, Working Paper Research from National Bank of Belgium

Abstract: We investigate the effect of market liquidity on equity-collateralized funding accounting for endogeneity. Theory suggests market liquidity can affect funding liquidity in stabilizing and destabilizing manners. Using the average fee on stock loans as a proxy for equity-collateralized funding liquidity, we confirm the existence of these two regimes over the period of July 2006 – May 2011. Furthermore, we show that we can separate the two regimes using the yield spread of Eurodollars over T-bills (TED spread) and that a regime switch seems to occur near a TED spread of 48 basis points.

Keywords: equity-collateralized funding liquidity; market liquidity; two-regime model; financial distress (search for similar items in EconPapers)
JEL-codes: G01 G18 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-11
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (7)

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Journal Article: Funding liquidity, market liquidity and TED spread: A two-regime model (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201311-244

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