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Global Liquidity, Risk Premiums and Growth Opportunities

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  • Gianni De Nicolò
  • Iryna Ivaschenko

Abstract

This paper constructs new indicators of liquidity for equity, bond and money markets in major advanced and emerging market countries, documents their evolution and co-movements, and assesses the extent to which such measures are determinants of selected spreads and proxy measures of countries’ growth opportunities. Three main results obtain. First, there is evidence of an historical increase in market liquidity since the early 1990s, in part as a result of advances in international financial integration, but markets have been increasingly exposed to global systemic liquidity shocks. Second, liquidity indicators appear to be important determinants of bond spreads in advanced economies and EMBI spreads in emerging markets. Third, improvements in market liquidity have significant real effects, as liquidity indicators have a significant positive impact on proxy measures of countries’ growth opportunities.

Suggested Citation

  • Gianni De Nicolò & Iryna Ivaschenko, 2009. "Global Liquidity, Risk Premiums and Growth Opportunities," CESifo Working Paper Series 2598, CESifo.
    • Handle: RePEc:ces:ceswps:_2598
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    References listed on IDEAS

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    Cited by:

    1. Gimet, Céline & Lagoarde-Segot, Thomas, 2011. "A closer look at financial development and income distribution," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1698-1713, July.
    2. Kingsley Y. L. Fong & Craig W. Holden & Charles A. Trzcinka, 2017. "What Are the Best Liquidity Proxies for Global Research?," Review of Finance, European Finance Association, vol. 21(4), pages 1355-1401.
    3. Ms. Sally Chen & Mr. Philip Liu & Andrea M. Maechler & Chris Marsh & Mr. Sergejs Saksonovs & Mr. Hyun S Shin, 2012. "Exploring the Dynamics of Global Liquidity," IMF Working Papers 2012/246, International Monetary Fund.
    4. Lagoarde-Segot, Thomas, 2013. "Does stock market development always improve firm-level financing? Evidence from Tunisia," Research in International Business and Finance, Elsevier, vol. 27(1), pages 183-208.
    5. repec:oup:rfinst:v:21:y:2017:i:4:p:1355-1401. is not listed on IDEAS
    6. Pietro Alessandrini & Michele Fratianni & Andrew Hughes Hallett & Andrea Filippo Presbitero, 2012. "External imbalances and financial fragility in the euro area," Mo.Fi.R. Working Papers 66, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    7. Pietro Alessandrini & Michele Fratianni & Andrew Hughes Hallett & Andrea Presbitero, 2014. "External Imbalances and Fiscal Fragility in the Euro Area," Open Economies Review, Springer, vol. 25(1), pages 3-34, February.

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    More about this item

    Keywords

    liquidity; risk premiums; growth opportunities;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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