The Co-Movements of Stock, Bond, and CDS Illiquidity Before, During and After the Global Financial Crisis
Journal of Financial Research, Forthcoming
56 Pages Posted: 28 Dec 2018 Last revised: 12 Oct 2020
Date Written: December 10, 2018
Using both market-wide and firm-level illiquidity measures of the stock, bond, and CDS markets, we find that the co-movements of illiquidity across markets increase significantly during the recent global financial crisis. Moreover, the degree of co-movements remains significantly higher in the post-crisis period and regulatory period than in the pre-crisis period. Specifically, the distribution of firm-level co-movements is notably different before and after the crisis (e.g., a much larger portion of firms with positive pairwise correlations between illiquidity measures in the post-crisis period than in the pre-crisis period). Our results provide suggestive evidence of the effects of financial crisis and the subsequent post-crisis regulations on the co-movements of illiquidity across markets.
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