Liquidity might be categorized into two types. The rst is asset liquidity, which is de ned as the ease with which an asset is traded. The second is funding liquidity, de ned as the capacity for a trader to raise funds. This paper presents a new approach to measure funding liquidity and shows that estimated funding liquidity can predict future stock market returns. I derive a model with three market participants (a customer, a speculator and a nancier), and describe why a speculator rst withdraws from small and volatile stocks when he faces nancial constraints. Based on this implication,
funding liquidity is measured as rolling correlations of stock market returns with the illiquidity of large and small stocks. The di erence of these rolling correlations is shown to predict future stock market returns, and its forecasting power is signi cant in both in-sample and out-of-sample tests. The result is also robust to the small-sample bias of predictive regressions as well as to the inclusion of various other predictors.
학회소식
공지사항
[2011년 제 4차] Liquidity Crisis and Risk Premiums
작성자 : 관리자
조회수 : 804
게시일 :
2011-12-07