Essays on liquidity risk and asset pricing.
详细信息
文摘
This work investigates the liquidity risk in financial markets, its asset pricing implications and related issues. Chapter one studies the market price of liquidity risk in the U.S. Treasury markets from a macroeconomic perspective, using on-the-run and off-the-run Treasury bonds as liquid and less liquid securities respectively. I jointly model the liquid and less liquid term structures in an affine framework with both latent and observable macro factors to investigate how the liquidity risk is priced. I find that macro variables such as inflation, real activity, and credit risk conditions have significant explanatory and forecasting power for the liquidity premium. The market price of risk and the conditional liquidity premium incorporated into the expected return of off the-run bonds vary significantly over time. Finally, the liquidity premium contains information about the future macroeconomy and can significantly improve the out-of-sample forecasting performance for macroeconomic variables. Chapter two asks the question whether a larger supply of a financial asset can lead to a higher price. The answer is yes because of the liquidity effect, meaning that the larger supply makes it easier to locate counterparties to trade and hence leads to a higher price by reducing illiquidity costs. The liquidity effect works in the opposite direction of the traditional scarcity effect, and this tradeoff leads naturally to the optimal supply decision of the security designer. These insights are illustrated in a simple search-based model. I also provide supporting empirical evidence for the effect of supply on asset prices using bond market data. I find that the effect of the amount outstanding on bond prices varies significantly over time and can be positive or negative, reflecting the changing of the relative strength between the scarcity and liquidity effects. On average, the scarcity effect dominates the liquidity effect in the U.S. Treasury market, and the opposite is true in the investment-grade corporate bond market. Furthermore, the supply effects on bond prices are correlated with other liquidity measures of bond markets like the 30-year benchmark premium. Chapter three documents an average return of 30 basis points per month on a 1-month/1-month momentum strategy that buys the best performing Treasury securities and sells the worst performing ones. The positive momentum return disappears for strategies using longer than one-month formation and holding periods. Most of the momentum returns are from the Treasury notes and bonds sectors, and are robust to most sub-periods. Surprisingly, I find that the commonly used risk factors and bond characteristics cannot explain the momentum profit. With no risk-based or behavior-based explanations available, the momentum profit is a puzzling phenomenon that needs further research.