Funding Liquidity and Equity Liquidity in the Subprime Crisis Period: Evidence from the ETF Market
Journal
Journal of Banking and Finance
Journal Issue
36
Pages
2660-2671
Date Issued
2012
Author(s)
Abstract
Using index and financial exchange-traded funds (ETFs), this study explores the relation between funding liquidity and equity liquidity during the subprime crisis period. Our empirical results show that a higher degree of funding illiquidity leads to an increase in bid-ask spread and a reduction in both market depth and net buying imbalance. Such findings indicate that an increase in funding liquidity can improve equity liquidity, with a stronger effect for the financial ETFs than for the index ETFs. Our study provides a better overall understanding of the effect of the liquidity-supplier funding constraint during the subprime crisis period. © 2012 Elsevier B.V.
SDGs
Type
journal article