Liquidity spillover in foreign exchange markets

Ya Ting Chang; Yin Feng Gau; Chih Chiang Hsu

doi:10.1016/j.frl.2021.102105

Liquidity spillover in foreign exchange markets

Ya Ting Chang, Yin Feng Gau, Chih Chiang Hsu

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10 Scopus citations

Abstract

We use an index of spillover based on the generalized variance decomposition developed by Diebold and Yilmaz (2009, 2012) to measure the spillover in liquidity in currency markets between 2008 and 2015. The results show that the liquidity spillovers across nine major foreign exchange markets increase with global risk and funding constraint. We also find a substantial difference in the propagation pattern of liquidity between the funding currencies and investment currencies markets.

Original language	English
Article number	102105
Journal	Finance Research Letters
Volume	44
DOIs	https://doi.org/10.1016/j.frl.2021.102105
State	Published - Jan 2022

Keywords

European debt crisis
Global financial crisis
Liquidity spillovers
Market risk

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10.1016/j.frl.2021.102105

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title = "Liquidity spillover in foreign exchange markets",

abstract = "We use an index of spillover based on the generalized variance decomposition developed by Diebold and Yilmaz (2009, 2012) to measure the spillover in liquidity in currency markets between 2008 and 2015. The results show that the liquidity spillovers across nine major foreign exchange markets increase with global risk and funding constraint. We also find a substantial difference in the propagation pattern of liquidity between the funding currencies and investment currencies markets.",

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AB - We use an index of spillover based on the generalized variance decomposition developed by Diebold and Yilmaz (2009, 2012) to measure the spillover in liquidity in currency markets between 2008 and 2015. The results show that the liquidity spillovers across nine major foreign exchange markets increase with global risk and funding constraint. We also find a substantial difference in the propagation pattern of liquidity between the funding currencies and investment currencies markets.

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KW - Liquidity spillovers

KW - Market risk

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Liquidity spillover in foreign exchange markets

Abstract

Keywords

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