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Treasury Bond Illiquidity and Global Equity Returns

Published online by Cambridge University Press:  07 July 2014

Ruslan Goyenko  and
Sergei Sarkissian
Ruslan Goyenko
Affiliation:
ruslan.goyenko@mcgill.ca, Faculty of Management, McGill University, Montreal, QC, H3A 1G5, Canada.
Sergei Sarkissian
Affiliation:
sergei.sarkissian@mcgill.ca, Faculty of Management, McGill University, Montreal, QC, H3A 1G5, Canada.
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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 a proxy for aggregate worldwide risks.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 5-6 , December 2014 , pp. 1227 - 1253
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

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