Banti, Chiara and Phylaktis, Kate and Sarno, Lucio (2012) Global liquidity risk in the foreign exchange market. Journal of International Money and Finance, 31 (2). pp. 267-291. DOI https://doi.org/10.1016/j.jimonfin.2011.11.010
Banti, Chiara and Phylaktis, Kate and Sarno, Lucio (2012) Global liquidity risk in the foreign exchange market. Journal of International Money and Finance, 31 (2). pp. 267-291. DOI https://doi.org/10.1016/j.jimonfin.2011.11.010
Banti, Chiara and Phylaktis, Kate and Sarno, Lucio (2012) Global liquidity risk in the foreign exchange market. Journal of International Money and Finance, 31 (2). pp. 267-291. DOI https://doi.org/10.1016/j.jimonfin.2011.11.010
Abstract
Using a broad data set of 20 US dollar exchange rates and order flow of institutional investors over 14 years, we construct a measure of global liquidity risk in the foreign exchange (FX) market. Our FX liquidity measure may be seen as the analog of the well-known Pastor-Stambaugh liquidity measure for the US stock market. We show that this measure has reasonable properties, and that there is a strong common component in liquidity across currencies. Finally, we provide evidence that liquidity risk is priced in the cross-section of currency returns, and estimate the liquidity risk premium in the FX market around 4.7 percent per annum. © 2011 Elsevier Ltd.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | Foreign exchange; Liquidity; Order flow; Microstructure |
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Essex Business School |
| SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
| Depositing User: | Unnamed user with email elements@essex.ac.uk |
| Date Deposited: | 29 Aug 2013 15:56 |
| Last Modified: | 04 Dec 2024 07:00 |
| URI: | http://repository.essex.ac.uk/id/eprint/5959 |