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This study aims to explore the relationship between three different kinds of bank liquidity: funding liquidity; liquidity creation; and stock liquidity.

It used the data from listed banks of BRICS countries spanning the period 2007-2014. Simultaneous equations model and three-stage least square estimation were used for analysis.

First of all, increase in liquidity creation is linked to decline in funding liquidity, but variation in funding liquidity does not describe changes in liquidity creation. Second, higher stock illiquidity is associated with greater liquidity creation, but liquidity creation does not determine variation in stock liquidity. Lastly, there is no direct relationship between funding liquidity and stock liquidity; however, stock liquidity indirectly affects funding liquidity through liquidity creation.

The findings highlight the fact that capital is not the only determinant of liquidity creation, rather stock liquidity is an equally important determinant in the case of listed banks of BRICS countries. This fact has been highlighted by the recent financial crisis. Furthermore, funding liquidity depends on liquidity creation which depends on stock liquidity. However, the stock liquidity of banks neither depends on liquidity creation nor funding liquidity.

To the best of the authors’ knowledge, this study is the first one to provide the empirical evidence for the relationship between three different kinds of bank liquidity.

The effects of capital-raising announcements have long been used as an indicator of increased shareholder wealth (Brown and Warner, 1985). Studies on bond announcements, for example, have been largely inconclusive. However, when effects are measured based on bond underlying structure, “straight and convertible bonds”, then the results are more conclusive (Abdul Rahim, 2012). Furthermore, issuances around crisis period are expected to result in negative market reaction as investors prefer liquidity (Fenn, 2000).

Sukuk are bond-like instruments that are issued based on the Sharia guidelines and perceived to be less risky due to their risk sharing attribute. Sukuk are issued by the governments and also corporations. Sukuk can either be debt-based or equity-based. The former resembles the conventional bond, and equity-based Sukuk resembles the convertible bonds. It is interesting to ascertain the market reaction to issuance of both type of Sukuk. This study determines the wealth effects of debt-based Sukuk issuances in Indonesia, around crisis period. Sukuk issues have steadily increased in Indonesia, and it is the second largest issuer in 2015 (Zawya, 2015a, 2015b).

The market reaction to corporate Sukuk issuance by Indonesian firms is yet to be documented, and the findings of this study address this issue, especially during the crisis period when the risk aversion is high and investors prefer liquidity. The Bai and Perron’s (2003) multiple breakpoint analysis was applied to determine the crisis period, which was between 2007 and 2010.

The findings suggest that the market reacts positively and significantly to debt-based Sukuk issuance during the crisis period, contrary to the theory that postulates a negative market reaction. Though these findings seem to be unique, it is possible that it is a behavioral effect of investors requiring less liquidity premium during crisis, contrary to expectations (Chen et al., 2007; Amihud and Mendelson, 1986).

The purpose of this paper is to provide the current state of knowledge about the Flash Crash. It has been one of the remarkable events of the decade and its causes are still a matter of debate.

This paper reviews the literature since the early days to most recent findings, and critically compares the most important hypotheses about the possible causes of the crisis.

Among the causes of the Flash Crash, the literature has propsed the following: a large selling program triggering the sales wave, small but not negligible delays suffered by the exchange computers, the micro-structure of the financial markets, the price fall leading to margin cover and forced sales, some types of feedback loops leading to downward price spiral, stop-loss orders coupled with scarce liquidity that triggered price reduction. On its turn leading to further stop-loss activation, the use of Intermarket Sweep Orders, that is, orders that sacrificed search for the best price to speed of execution, and dumb algorithms.

The results of the previous section are condensed in a set of policy implications and recommendations.

The purpose of this paper is to originate a proactive approach for the quantification and analysis of liquidity risk for trading portfolios that consist of multiple equity assets.

The paper presents a coherent modeling method whereby the holding periods are adjusted according to the specific needs of each trading portfolio. This adjustment can be attained for the entire portfolio or for any specific asset within the equity trading portfolio. This paper extends previous approaches by explicitly modeling the liquidation of trading portfolios, over the holding period, with the aid of an appropriate scaling of the multiple‐assets' liquidity‐adjusted value‐at‐risk matrix. The key methodological contribution is a different and less conservative liquidity scaling factor than the conventional root‐t multiplier.

The proposed coherent liquidity multiplier is a function of a predetermined liquidity threshold, defined as the maximum position which can be unwound without disturbing market prices during one trading day, and is quite straightforward to put into practice even by very large financial institutions and institutional portfolio managers. Furthermore, it is designed to accommodate all types of trading assets held and its simplicity stems from the fact that it focuses on the time‐volatility dimension of liquidity risk instead of the cost spread (bid‐ask margin) as most researchers have done heretofore.

Using more than six years of daily return data, for the period 2004‐2009, of emerging Gulf Cooperation Council (GCC) stock markets, the paper analyzes different structured and optimum trading portfolios and determine coherent risk exposure and liquidity risk premium under different illiquid and adverse market conditions and under the notion of different correlation factors.

This paper fills a main gap in market and liquidity risk management literatures by putting forward a thorough modeling of liquidity risk under the supposition of illiquid and adverse market settings. The empirical results are interesting in terms of theory as well as practical applications to trading units, asset management service entities and other financial institutions. This coherent modeling technique and empirical tests can aid the GCC financial markets and other emerging economies in devising contemporary internal risk models, particularly in light of the aftermaths of the recent sub‐prime financial crisis.

This paper aims to present the first empirical liquidity measurement of China’s agricultural futures markets and study time-varying liquidity dependence across markets.

Based on both high- and low-frequency trading data of soybean and corn, this paper evaluates short-term liquidity adjustment in Chinese agricultural futures market measured by liquidity benchmark and long-term liquidity development measured by liquidity proxies.

By constructing comparisons, the authors identify the seminal paper of Fong, Holden and Trzcinka (2017) as the best low-frequency liquidity proxy in China’s agricultural futures market and capture similar historical patterns of the liquidity in soybean and corn markets. The authors further employ Copula-generalized autoregressive conditional heteroskedasticity models to investigate liquidity dependence between soybean and corn futures markets. Results show that cross-market liquidity dependence tends to be dynamic and asymmetric (in upper versus lower tails). The liquidity dependence becomes stronger when these markets experience negative shocks than positive shocks, indicating a concern on the contagion effect of liquidity risk under negative financial situations.

The findings of this study provide useful information on the dynamic evolution of liquidity pattern and cross-market dependence of fastest-growing agricultural futures in the largest emerging economy.

The aim of this research is twofold. First, we study average levels of liquidity for long-run through-the-cycle periods, which potentially allow eliminating procyclicality from risk parameters used for expected credit-loss calculations. Second, we investigate to what extent the relative illiquidity of individual credit default swap (CDS) contracts affects their spreads in comparison with the respective CDS indices.

Based on the iTraxx Europe CDS index covering European firms and the CDX North America CDS index covering US firms, as well as on individual CDS transactions involving the reference entities constituting these two benchmark indices, we investigate the excess liquidity premia in spreads of the single-name CDS contracts over the spreads of the iTraxx and CDX indices over 2007-2017.

First, single-name CDS excess liquidity premia depend on CDS contract maturity. Second, the long-run average spread of a benchmark index may stay as low as three-fourths of the respective long-run average of the mean of the single-name CDS spreads, meaning that the excess liquidity premium may be as high as one-fourth of the firm-specific CDS spread. Third, the term structure of the excess liquidity differs between the Europe and North America geographies. Fourth, on average, the excess liquidity premia in the single-name CDS spreads over the respective CDS indices diminish with increasing maturities of CDS contracts.

No previous research addresses differences between the liquidity component in a benchmark CDS index spreads and the mean spread averaged across the constituents of the index. Our work fills this gap.

The purpose of this paper is to provide an account of the financial crisis in Western Europe, primarily from a country‐level and banking sector perspective, from 2007 to the spring of 2009. It aims to detail measures enacted by governments and central banks to deal with impaired bank assets, recapitalize or otherwise resolve troubled banks, and inject liquidity into the banking system. It also aims to examine reform proposals aimed at creating a more secure and stable financial system.

The paper draws on factual material and analysis that is presented in central bank reports, other banking sector surveys and reports, media reports, and analysis by leading academics and practitioners sourced from published articles and books, working papers and blogs.

Recent firefighting measures to purchase impaired assets, recapitalize troubled banks, and inject liquidity have commanded widespread support, despite moral hazard concerns surrounding publicly funded bank bailouts. However, the roadmap to recovery remains uncertain. There is concern that significant volumes of impaired assets have been retained on many Western European bank balance sheets. Under the regulatory framework that is being shaped in response to the crisis, banks are expected to become leaner, more strongly capitalized and less highly leveraged, and to develop improved risk management practices.

This paper is written for a broad audience to provide a descriptive summary of the financial crisis in Western Europe, a survey of the debate concerning the implications for bank regulation and an extensive bibliography that will serve as a valuable resource for banking academics and practitioners.

The purpose of this study is to assess the seriousness of the impact of new regulatory factors on liquidity in government bond markets since the onset of the global financial crisis.

Questionnaires were circulated for examining the adverse impact of regulatory changes on liquidity. New evidence was presented about the adverse impact of the process of regulatory changes on market liquidity.

The paper presents new survey results on the adverse liquidity impact of regulations on market liquidity. Responses show that government issuers differ in their assessment on the severity of the impact of the various regulations. Determining this longer-term impact is quite complex because measures of liquidity may not only reflect the impact of regulatory changes, but also the responses by policymakers and market participants (to these regulatory changes), covering in particular the following: market transparency, trading practices, market infrastructure and other policies to promote liquidity, including by reducing unconventional monetary policy measures. Also, market dynamics may have become more complex due to responses by market participants.

Debt managers need to take into account regulations with a significant adverse influence on both market liquidity and the price discovery process. As liquidity in government bond markets also has a direct impact on funding possibilities and financing costs, funding liquidity may also be affected, especially during periods with market stress. This means that the funding strategy may need to be adapted.

The paper presents new survey results on the impact of new regulations on market liquidity. This assessment is quite complex because measures of longer-term liquidity may reflect the impact of regulatory changes and the responses by policymakers and market participants to these changes.

The purpose of this paper is to examine liquidity risk in Pakistani banks and evaluate the effect on banks' profitability.

Data are retrieved from the balance sheets, income statements and notes of 22 Pakistani banks during 2004‐2009. Multiple regressions are applied to assess the impact of liquidity risk on banks' profitability.

The results of multiple regressions show that liquidity risk affects bank profitability significantly, with liquidity gap and non‐performing as the two factors exacerbating the liquidity risk. They have a negative relationship with profitability.

The period studied in this paper is 2004‐2009, due to availability of the data. However, the sample period does not impair the findings since the sample includes 22 banks, which constitute the main part of the Pakistani banking system. Moreover, only profitability is used as the measure of performance. Economic factors contributing to liquidity risk are not covered in this paper.

This is the first paper addressing the liquidity risk faced by the Pakistani banking system. Past researchers and practitioners have not given the proper attention to liquidity risk. This paper helps in understanding the factors of liquidity risk and their impact on the profitability of the banking system. The authors emphasise contemporary risk managers to mitigate liquidity risk by having sufficient cash resources. This will reduce the liquidity gap, thereby reducing the dependence on repo market.