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The Asymmetric Impact of Funding Liquidity Risk on the Volatility of Stock Portfolios during the COVID-19 Crisis

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  • Baris Kocaarslan

    (Department of Business Administration, Middle East Technical University, 06800 Ankara, Turkey
    Department of Business Administration, Yalova University, 77200 Yalova, Turkey)

  • Ugur Soytas

    (Department of Technology, Management and Economics, Sustainability Division, Technical University of Denmark, Kgs. Lyngby, 2800 Lyngby-Taarbæk, Denmark)

Abstract

In this study, we identify economic transmission channels through which changes in funding liquidity conditions in interbank markets asymmetrically affect volatilities of stock portfolios during the COVID-19 crisis. For the purpose of this study, the quantile regression approach is utilized. Controlling for macroeconomic factors, we document that volatilities of high-risk portfolios increase more in response to a deterioration in funding liquidity conditions compared to less risky portfolios. More importantly, this increase intensifies in high-volatility periods of high-risk portfolios, which implies the impact is stronger during uncertain economic environments, such as the one caused by the COVID-19 outbreak.

Suggested Citation

  • Baris Kocaarslan & Ugur Soytas, 2021. "The Asymmetric Impact of Funding Liquidity Risk on the Volatility of Stock Portfolios during the COVID-19 Crisis," Sustainability, MDPI, vol. 13(4), pages 1-12, February.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:4:p:2286-:d:502552
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    2. Thai Hung, Ngo & Nguyen, Linh Thi My & Vinh Vo, Xuan, 2022. "Exchange rate volatility connectedness during Covid-19 outbreak: DECO-GARCH and Transfer Entropy approaches," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).

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