Skip to main content Accessibility help
×
Home

Liquidity: essence, risk, institutions, markets and regulation: a report of the liquidity working party

  • C. Keating, J. Hatchett, A. Smith, J. Walton and T. Zhao...

Abstract

This study is a subjective synthesis of the work of many academics, supervisors and practitioners on the topic of liquidity and many of its multiple aspects. It borrows heavily and freely from those works in the pursuit of coherence, as this subject can be both confused and confusing. Although many hypotheses, both established and speculative, are referred to, none is proposed in this paper. In order to be of possible use to a range of readers, it roams from the most basic and elementary to some of the most recent and advanced. In pursuit of brevity and readability, in many instances it can do little more than introduce a particular feature and leave further investigation to the reader. Liquidity is clearly a topic with much unfinished business. Our ambition in writing this paper is threefold: first, to raise awareness amongst actuaries of the wide-ranging implications for actuarial work of liquidity; second, to bring some coherence to the manifold measures and uses of the concept of liquidity by attempting to synthesise some of the key elements of knowledge today; finally, to highlight some of the more high profile and open questions relevant for actuarial work. This paper makes many references to behaviour during the crisis and its aftermath; however, it is not intended to be a forensic analysis of the crisis attributing causality. The crisis has simply served as an experiment during which many things became observable.

Copyright

Corresponding author

*Correspondence to: Con Keating, BrightonRock Group. E-mail: con2.keating@brightonrockgroup.co.uk

References

Hide All
Advances in Monetary and Financial Measurement (AMFM). Available at: http://www.centerforfinancialstability.org/amfm.php [Accessed 15 December 2015].
Akerlof, G. (1970). The market for lemons, qualitative uncertainty and the market mechanism. Quarterly Journal of Economics 84.
Amato, M. & Fantacci, L. (2012). The End of Finance. Polity.
Aumann, R. (1976). Agreeing to disagree. The Annals of Statistics 4(6), 12361239.
Bao, J., Pan, J. & Wang, J. (2011). The illiquidity of corporate bonds. Journal of Finance 66(3), 911946.
Bank for International Settlements (1999). Market liquidity: research findings and selected policy implications. CGFS Publications No. 11.
BIS Committee on the Global Financial System (2011). Global liquidity – concept, measurement and policy implications, Paper 45, available at http://www.bis.org/publ/cgfs45.pdf (accessed 15 December 2015).
Bloomfield, R.J., O’Hara, M. & Saar, G. (2006). The limits of noise trading: an experimental analysis, Cornell University working paper, Cornell University.
Clower, R. (1965). The Keynesian Counter-Revolution: A Theoretical Appraisal” in Hahn & Brechling “The Theory of Interest Rates”. Macmillan.
D’Souza, C. & Gaa, C. (2004). The effect of economic news on bond market liquidity, Bank of Canada Working Paper No. 2004–16, Bank of Canada.
Demyanyk, Y. & Van Hemert, O. (2008). Understanding the subprime mortgage crisis, working paper, Federal Reserve Bank, St Louis.
Ericsson, J. & Renault, O. (2001). Liquidity and credit risk, FAME Research Paper Series rp42, International Center for Financial Asset Management and Engineering.
Fender, I. & Scheicher, M. (2008). The ABX: how do the markets price subprime mortgage risk. BIS Quarterly Review, September.
Fender, I. & Scheicher, M. (2009). The pricing of subprime mortgage risk in good times and bad, Working Paper No. 1056, European Central Bank, May.
Fleming, M.J. (2003). Measuring treasury market liquidity. FRBNY Economic Policy Review, September, available at http://www.newyorkfed.org/research/epr/03v09n3/0309flem.pdf (accessed 15 December 2015).
Fontaine, J.-S., Garcia, R. & Gungor, S. (2013). Funding liquidity risk and the cross-section of stock returns (preprint).
Gehr, A.K. & Martell, T.F. (1992). Pricing efficiency in the secondary market for investment-grade corporate bonds. The Journal of Fixed Income 2(3), 2438.
Hauser, A. (2014). Why there is life after death: four myths about the future of securities financing markets, Speech given at JP Morgan’s Collateral Management and Securities Financing Forum, London.
Hogan, T.L. (2012). Competition in currency, the potential for private money, Cato Institute, 23 May.
Holl, T. & Winn, R. (1995). Comparability of different measures of liquidity on the Australian stock exchange, technical report, Security Industry Research Center of Asia-Pacific.
Holmström, B. & Tirole, J. (2011). Inside and Outside Liquidity. MIT Press.
Hotchkiss, E. & Jostova, G. (2007). Determinants of corporate bond trading: a comprehensive analysis, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1001459 (accessed 15 December 2015).
Houweling, P., Mentink, A. & Vorst, T. (2005). Comparing possible proxies of corporate bond liquidity. Journal of Banking and Finance 29(6), 13311358.
International Capital Market Association (2014). 26th ICMA ERC European Repo Survey, available at http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/short-term-markets/Repo-Markets/repo/latest/ (accessed 15 December 2015).
Jankowitsch, R., Mösenbacher, H. & Pichler, S. (2006). Measuring the liquidity impact on EMU government bond prices The European Journal of Finance 12(2), 153169.
Jevons, W.S. (1875). Money and the Mechanism of Exchange D. Appleton and Co.
Jurgilas, M. & Zikes, F. (2012). Implicit intraday interest rate in the UK unsecured overnight money market, Working Paper No. 447, Bank of England.
Keating, C. & Marshall, B. (2010a). Trust and markets – the SubPrime WhoDunnit solved? EFFAS-EBC European Bond Commission.
Keating, C. & Marshall, B. (2010b). Banking on liquidity: liquidity, collateral and derivatives, Edhec Risk Institute, available at http://ebookbrowsee.net/banking-on-liquidity-con-keating-and-barry-marshall-pdf-d109765458 (accessed 15 December 2015).
Keynes, J.M. (1936). General Theory of Employment, Interest and Money. Palgrave Macmillian.
King, M. (2006). Trusting in money: from Kirkcaldy to the MPC, The Adam Smith lecture.
Kiyotake, N. & Moore, J. (2001). Evil is the root of all money, Clarendon lecture.
Lewis, D. ([1969] 2002). Convention: A Philosophical Study. Harvard University Press, 1969. Reissued by Blackwell Publishers, 2002.
Mahanti, S., Nashikkar, A., Subrahmanyam, M., Chacko, G. & Mallik, G. (2008). Latent liquidity: a new measure of liquidity, with an application to corporate bonds. Journal of Financial Economics 88(2), 272298.
Malherbe, F. (2014). Self-fulfilling liquidity dry-ups. The Journal of Finance 69(2), 947970.
McLeay, M., Raida, A. & Thomas, R. (2014). Money in the modern economy: an introduction. Bank of England Quarterly Bulletin, Q1.
McKinsey Global Institute (2013). Financial globalisation: Retreat or Reset? Global capital markets.
Memorandum to Members of the Permanent Subcommittee on Investigations (2010). Wall Street and the financial crisis: the role of investment banks, 26 April.
Morris, S. & Shin, H. (2010). Contagious adverse selection, working paper, Princeton University, March.
Nunn, K.P., Hill, J. & Schneeweis, T. (1986). Corporate bond price data sources and return/risk measurement. Journal of Financial and Quantitative Analysis V, 197208.
O’Neill, O. (2012). What we don’t understand about trust, available at http://www.ted.com/talks/onora_o_neill_what_we_don_t_understand_about_trust (accessed 15 December 2015).
Roll, R. (1984). A simple effective measure of the implicit bid-ask spread in an efficient market. Journal of Finance XXXIX.
Singh, M. (2013). The changing collateral landscape, IMF Working Paper No. 13/25, IMF.
Tobin, J. (1963). Commercial banks as creators of “money”, Cowles Foundation Discussion Papers No. 159, Cowles Foundation.
Tetlock, P.C. (2007). Does liquidity affect securities market efficiency? University of Texas, working paper, University of Texas, available at http://www.columbia.edu/~pt2238/papers/Tetlock_Liquidity_and_Efficiency_03_07.pdf (accessed 15 December 2015).
Turner, A. (2014). Escaping the debt addiction: monetary and macro-prudential policy in the post crisis world, Centre for Financial Studies.
Werner, R. (2014). The money game, Talk presented to the Institute and Faculty of Actuaries Risk and Investment Conference.
Zhou, X. (2009). Reform the international monetary system. BIS Review 41.
Zigrand, J.-P. (2014). Systems and systemic risk in finance and economics, London School of Economics SRC Special Paper No. 1, London School of Economics, available at http://www.systemicrisk.ac.uk/sites/default/files/downloads/publications/sp-1_0.pdf (accessed 15 December 2015).
Z/Yen (2011). Capacity trade and credit: Emerging architectures for commerce and money, Report prepared for the City of London Corporation, ESRC, and Recipco.

Keywords

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed