Benchmarking Liquidity Proxies: The Case of EU Sovereign Bonds
We examine effective measures of liquidity in the context of EU sovereign bonds and the
Basel III regulatory framework. We observe that the empirical correlations between
benchmarks and proxies are typically very low and in general become weaker as the
frequency over which these relationships are examined becomes higher, and that the
relative strength of the various proxies may change with the frequency considered. The
main implications of our results for the EU sovereign bond market are (i) the use of
liquidity proxies may lead to erroneous conclusions; (ii) any liquidity measure needs to
be assessed against the relevant timeframe for conversion into cash; and (iii) the end-ofday
spread is the best performing proxy across different frequencies.
LANGEDIJK Sven;
MONOKROUSOS Georgios;
PAPANAGIOTOU Evangelia;
2017-11-20
ELSEVIER SCIENCE BV
JRC91068
1059-0560,
http://www.sciencedirect.com/science/article/pii/S1059056017308535,
https://publications.jrc.ec.europa.eu/repository/handle/JRC91068,
10.1016/j.iref.2017.11.002,
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