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Measuring financial market liquidity
Journal of Risk Management in Financial Institutions,
1
(2),
181-190
(2008)
Abstract
This paper introduces a new composite indicator of market liquidity, based on a series of measures developed in the academic literature. The indicator suggests that financial market liquidity was markedly lower in the summer of 2007, following a period of high liquidity. The indicator shows that market liquidity can fall rapidly in times of stress, highlighting the importance of managing this source of risk in the financial system. The views expressed in this paper are those of the author and not necessarily those of the Bank of England.
Keywords: liquidity; liquidity risk; liquidity premium; bid-ask spreads; risk management
The full article is available to subscribers to the journal.
Author's Biography
Will Kerry works in the Systemic Risk Assessment Division of the Bank of England, which is responsible for assessing key vulnerabilities to the UK financial system. This involves considering the main market, credit, operational and business risks facing the financial system through an analysis of data and news in the financial markets and macro economy in the UK and abroad. A quantitative approach is also taken by applying stress tests to a model of the UK banking sector. Twice a year, this assessment is published in the Financial Stability Report. Will has an MSc in finance and economics from the London School of Economics.
Citation
Kerry, Will (2008, March 1). Measuring financial market liquidity. In the Journal of Risk Management in Financial Institutions, Volume 1, Issue 2. https://doi.org/10.69554/QDJB4587.
© Henry Stewart
Publications LLP
Publications LLP