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4 edition of Explaining the magnitude of liquidity premia found in the catalog.

Explaining the magnitude of liquidity premia

Anthony W. Lynch

Explaining the magnitude of liquidity premia

the roles of return perdictability, wealth shocks and state-dependent transaction costs

by Anthony W. Lynch

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  • 9 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English


Edition Notes

StatementAnthony W. Lynch, Sinan Tan.
SeriesNBER working paper series ;, working paper 10994, Working paper series (National Bureau of Economic Research : Online) ;, working paper no. 10994.
ContributionsTan, Sinan., National Bureau of Economic Research.
Classifications
LC ClassificationsHB1
The Physical Object
FormatElectronic resource
ID Numbers
Open LibraryOL3475619M
LC Control Number2005615012

Aswath Damodaran 3 The Components of Trading Costs for an asset Brokerage Cost: This is the most explicit of the costs that any investor pays but it is by far the smallest component. Bid-Ask Spread: The spread between the price at which you can buy an asset (the dealer’s ask price) and the price at which you can sell the same asset at. W. Bühler, M. Trapp Time-Varying Credit Risk and Liquidity Premia in Bond and CDS Markets W. Bühler, M. Trapp Explaining the Bond-CDS Basis – The Role of Credit Risk and Liquidity S. J. Taylor, P. K. Yadav, Y. Zhang Cross-sectional analysis of risk-neutral skewness A. Kempf, C. Merkle, A. Niessen-Ruenzi.

Deuskar, Gupta, and Subrahmanyam () and Li and Zhang () discuss and empirically investigate the existence of illiquidity premia and discounts in derivatives markets, which are zero net supply markets. Both papers convincingly argue that it is not obvious ex ante whether one should expect liquidity premia or discounts in derivatives markets.   Broad Liquidity: A category of the money supply which includes: all funds in M3, individual holdings in accounts, savings bonds, T-bills with maturity of .

  Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. A higher liquidity premium makes taking leverage more costly, which leads to less risk taking, higher risk premia, lower asset prices, and less investment. Risk premia are also higher in the bond market, consistent with the evidence of Hanson & Stein ().


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Explaining the magnitude of liquidity premia by Anthony W. Lynch Download PDF EPUB FB2

Constantinides () documents how the impact of transaction costs on per‐annum liquidity premia in the standard dynamic allocation problem with i.i.d.

returns is an order of magnitude smaller than the cost rate itself. Recent papers form portfolios sorted on liquidity measures and find spreads in expected per‐annum return that are the same order of magnitude as the transaction cost by: Get this from a library.

Explaining the magnitude of liquidity premia: the roles of return predictability, wealth shocks and state-dependent transaction costs. [Anthony W Lynch; Sinan Tan; National Bureau of Economic Research.] -- "The seminal work of Constantinides () documents how, when the risky return is calibrated to the U.S.

market return, the impact of transaction costs on per. Published: ANTHONY W. LYNCH & SINAN TAN, "Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks, and State-Dependent Transaction Costs," The Journal of Finance, vol 66(4), pages Users who downloaded this paper also downloaded* these:Cited by: Get this from a library.

Explaining the Magnitude of Liquidity Premia: the Roles of Return Predictability, Wealth Shocks and State-Dependent Transaction Costs. [Sinan Tan; Anthony W Lynch; National Bureau of Economic Research.;] -- The seminal work of Constantinides () documents how, when the risky return is calibrated to the U.S.

market return, the impact of transaction costs on per. The seminal work of Constantinides () documents how, when the risky return is calibrated to the U.S. market return, the impact of transaction costs on per-annum liquidity premia is an order of magnitude smaller than the cost rate itself. The seminal work of Constantinides () documents how, when the risky return is calibrated to the U.S.

market return, the impact of transaction costs on per-annum liquidity premia is an order of. "Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks, and State‐Dependent Transaction Costs," Journal of Finance, American Finance Association, vol.

66(4), pagesAugust. BibTeX @MISC{Lynch_explainingthe, author = {Anthony W. Lynch and Sinan Tan}, title = {Explaining the magnitude of liquidity premia: The roles of return predictability, wealth shocks and state-dependent transaction costs}, year = {}}.

Explaining the magnitude of liquidity premia: The roles of return predictability, wealth shocks and state-dependent transaction costs. By Anthony W. Lynch and Sinan Tan. Abstract. Work in progress. Comments welcome. The authors would like to thank Joel Hasbrouck and the participants of the NYU Monday Finance Seminar and the NHH Finance Seminar.

Explaining the Magnitude of Liquidity Premia to move around through time as the agent takes advantage of the time-varying expected returns. This time variation in the optimal weights creates an addi- tional motive for trading that causes higher liquidity premia when returns are predictable.

Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks and State-dependent Transaction Costs Anthony W. Lynch and Sinan Tan NBER Working Paper No.

December JEL No. G11, G12 ABSTRACT The seminal work of Constantinides () documents how, when the risky return is calibrated to. Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks, and State-Dependent Transaction Costs ANTHONY W. LYNCH and SINAN TAN* ABSTRACT Constantinides () documents how the impact of transaction costs on per-annum liquidity premia in the standard dynamic allocation problem with i.i.d.

returns is an. Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks and State-dependent Transaction Costs Abstract The seminal work of Constantinides () documents how, when the risky return is calibrated to the U.S.

market return, the impact of transaction costs on per-annum liquidity premia is an order. bond liquidity and risk premia associated with changes in liquidity over time.

In this paper we provide empirical evidence that corporate bonds are exposed to systematic liquidity shocks. In addition, we estimate the associated liquidity risk premia and show that these premia help to explain.

Liquidity Risk Premia in Corporate Bond Markets Frank de Jong and the associated liquidity risk premia help to explain the credit spread puzzle. In terms of expected returns, the total estimated Bid-ask spreads in the corporate bond market are an order of magnitude higher than in the treasury market.

In a recent study, Edwards, Harris. The factors are closely related to different segments of the term structure. β 0t determines the level of the long end of the term structure. Therefore, we call β 0t the long-term factor.

β 1t is a slope factor that characterizes the difference between short-term and long-term yields. β 0t + β 1t determines the short end of the term structure. Therefore, we call β 0t + β 1t the short. rise to a distribution of \liquidity premia." Namely, an asset that is easier to nd is sold at a higher price.

The rst contribution of this paper is to derive a oat-adjusted return model, or FARM, explaining the pricing of liquidity di erences with the following linear formula Rk RL = ˚ ˚k (RM RL): (1).

In economics, a liquidity premium is the explanation for a difference between two types of financial securities (e.g. stocks), that have all the same qualities except liquidity. It is a segment of a three-part theory that works to explain the behavior of yield curves for interest upwards-curving component of the interest yield can be explained by the liquidity premium.

1. Introduction. This paper studies liquidity risk contagion within the short-term interbank market in times of financial market turmoil. During the early stages of the financial crisis of –08, liquidity risk observed in one market quickly spilled over to neighbouring markets.

Reserve variations alone explain % of funding liquidity variations with a negative coefficient. Model B presents results from a regression on the monetary aggregates. Together, they explain % of funding liquidity variations. Increases in the monetary base are associated with substantially lower values of funding liquidity value.

Explaining the Magnitude of Liquidity Premia: The Roles of Return. when the risky return is calibrated to the U.S. market return, the impact of transaction costs on per-annum liquidity premia is an order of magnitude smaller than.a ects asset prices and the nancial system in ways not explained by the New Keynesian paradigm.

In particular, monetary policy appears to impact risk premia in stock and bond prices, and to e ec- tively control the liquidity premium in the economy (the cost of holding liquid assets).Liquidity Premia and Transaction Costs the magnitude of liquid-ity premia cannot be large enough to fully explain the equity premium puzzle (see Mehra and Prescott ()).

Unlike the no-transaction-cost case, smoothing of trading strategies across.