Evaporating Liquidity
The returns of short-term reversal strategies in equity markets can be interpreted as a proxy for the returns from liquidity provision. Using this approach, this article shows that the return from liquidity provision is highly predictable with the VIX index. Expected returns and conditional Sharpe r...
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| Veröffentlicht in: | The Review of financial studies 2012-07, Vol.25 (7), p.2005-2039 |
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| container_end_page | 2039 |
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| container_issue | 7 |
| container_start_page | 2005 |
| container_title | The Review of financial studies |
| container_volume | 25 |
| creator | Nagel, Stefan |
| description | The returns of short-term reversal strategies in equity markets can be interpreted as a proxy for the returns from liquidity provision. Using this approach, this article shows that the return from liquidity provision is highly predictable with the VIX index. Expected returns and conditional Sharpe ratios from liquidity provision spike during periods of financial market turmoil. The results point to withdrawal of liquidity supply and an associated increase in the expected returns from liquidity provision, as a main driver behind the evaporation of liquidity during times of financial market turmoil, consistent with theories of liquidity provision by financially constrained intermediaries. |
| doi_str_mv | 10.1093/rfs/hhs066 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0893-9454 |
| ispartof | The Review of financial studies, 2012-07, Vol.25 (7), p.2005-2039 |
| issn | 0893-9454 1465-7368 |
| language | eng |
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| source | Jstor Complete Legacy; Oxford University Press Journals All Titles (1996-Current); EBSCOhost Business Source Complete |
| subjects | Capital market Economic conditions Economic crises Economic crisis Equity Expected returns Experimental methods Financial intermediaries Financial portfolios Funding liquidity Indexes Investment policy Liquidity Liquidity risk Market prices Order flow Risk premiums Securities markets Stock prices Studies |
| title | Evaporating Liquidity |
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