MLiq a meta liquidity measure
Darolles, Serge; Dudek, Jérémy; Le Fol, Gaëlle (2012), MLiq a meta liquidity measure, Computational and Financial Econometrics (CFE'12), 2012-12, Oviedo, SPAIN
TypeCommunication / Conférence
Conference titleComputational and Financial Econometrics (CFE'12)
MetadataShow full item record
Abstract (EN)The last crisis sheds light on the importance to consider liquidity risk in the financial industry. Indeed, liquidity had a predominant role in propagating the turmoil. In contrast, controlling for liquidity is a difficult task. The definition of liquidity links different dimensions that are impossible to fully capture together. As a consequence, there exist a lot of liquidity measures and we find in the literature some solutions to take into account more than one dimension of liquidity but also liquidity measures considering a long lasting liquidity problem. In this paper, we focus on drastic illiquidity events, i.e liquidity problems reported by several liquidity measures simultaneously. We propose a Meta-Measure of liquidity called MLiq and defined as the probability to be in a state of high liquidity risk. We use a multivariate model allowing to measure correlations between liquidity measures jointly with a state-space model that endogenously defines the illiquid periods.
Subjects / KeywordsCorrelations; Regime Switching models; Liquidity Risk Management; Liquidity measure; Liquidity
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