Is Market Liquidity Less Resilient after the Financial Crisis? Evidence for US Treasuries
32 Pages Posted: 28 Jun 2019 Last revised: 17 Jul 2019
Date Written: June 27, 2019
We analyse the market liquidity level and resilience of US 10-year Treasury bonds. Having checked that five indicators show inconclusive results on the liquidity level, we fit a bivariate CC-GARCH model to evaluate its resilience, that is, how liquidity reacts to financial shocks. According to our results, spillovers from liquidity volatility to returns volatility and viceversa are more intense after the crisis. Further, the volatility persistence of both returns and liquidity becomes lower after the crisis. These results are consistent with the existence of more frequent short-lived episodes of high volatility and more unstable liquidity that is more prone to evaporation.
Keywords: market liquidity, volatility, US Treasuries; CC-GARCH model
JEL Classification: G24, C33
Suggested Citation: Suggested Citation