Funding liquidity and equity liquidity in the subprime crisis period: Evidence from the ETF market

Junmao Chiu, Huimin Chung*, Keng Yu Ho, George H.K. Wang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

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.

Original languageEnglish
Pages (from-to)2660-2671
Number of pages12
JournalJournal of Banking and Finance
Volume36
Issue number9
DOIs
StatePublished - 1 Sep 2012

Keywords

  • Collateral market
  • Equity liquidity
  • Funding liquidity
  • Interbank market
  • Subprime crisis

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