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Spread and Liquidity Issues: A markets comparison

Author

Listed:
  • Strašek Sebastjan

    (Faculty of Economics and Business, University of Maribor, Slovenia)

  • Bricelj Bor

    (Faculty of Economics and Business, University of Maribor, Slovenia)

Abstract

The financial crises are closely connected with spread changes and liquidity issues. After defining and addressing spread considerations, we research in this paper the topic of liquidity issues in times of economic crisis. We analyse the liquidity effects as recorded on spreads of securities from different markets. We stipulate that higher international risk aversion in times of financial crises coincides with widening security spreads. The paper then introduces liquidity as a risk factor into the standard value-at-risk framework, using GARCH methodology. The comparison of results of these models suggests that the size of the tested markets does not have a strong effect on the models. Thus, we find that spread analysis is an appropriate tool for analysing liquidity issues during a financial crisis.

Suggested Citation

  • Strašek Sebastjan & Bricelj Bor, 2016. "Spread and Liquidity Issues: A markets comparison," Naše gospodarstvo/Our economy, Sciendo, vol. 62(1), pages 3-11, March.
    • Handle: RePEc:vrs:ngooec:v:62:y:2016:i:1:p:3-11:n:1
    DOI: 10.1515/ngoe-2016-0001
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    References listed on IDEAS

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    More about this item

    Keywords

    liquidity; financial crisis; GARCH VaR models;
    All these keywords.

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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