Treasury Bond Illiquidity and Global Equity Returns

41 Pages Posted: 5 Mar 2008 Last revised: 18 Nov 2012

Ruslan Goyenko

McGill University - Desautels Faculty of Management

Sergei Sarkissian

McGill University; Yerevan State University

Date Written: October 25, 2012

Abstract

In this study, using data from 46 markets and a 34-year time period, we examine the impact of the illiquidity of U.S. Treasuries on global asset valuation. We find that it predicts equity returns in both developed and emerging markets. This predictive relation remains intact after controlling for various world and country-level variables. Asset pricing tests further reveal that bond illiquidity is a priced factor even in the presence of other conventional risks. Since the illiquidity of Treasuries is known to reflect monetary and macroeconomic shocks, our results suggest that it can be considered as a proxy for aggregate worldwide risks.

Keywords: asset allocation, cross-market linkages, bond illiquidity premium, conditional asset pricing

JEL Classification: G12, G15

Suggested Citation

Goyenko, Ruslan and Sarkissian, Sergei, Treasury Bond Illiquidity and Global Equity Returns (October 25, 2012). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1100174 or http://dx.doi.org/10.2139/ssrn.1100174

Ruslan Goyenko

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Sergei Sarkissian (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)

Yerevan State University

1 Alex Manoogian Street
Yerevan, 0025
Armenia

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