The dynamics and determinants of liquidity connectedness across financial asset markets
Document Type
Article
Publication Date
1-1-2022
Abstract
We quantify the degree of liquidity connectedness across stock, bond, money and foreign exchange markets in Malaysia. The liquidity connectedness index from the time-varying parameter vector autoregression model reveals sensitivity to extreme market events but low cross-asset liquidity contagion on average, implying negligible risk of a systemic liquidity dry-up in the Malaysian financial markets. Further analysis finds that cross-asset liquidity connectedness is explained by global market uncertainty, perceived credit risk as well as international crude oil prices. The influence of external factors underscores the needs for small open economy like Malaysia to expand market surveillance to monitor cross-border liquidity shocks.
Keywords
Liquidity connectedness, Liquidity spillovers, Time-varying parameter VAR, Financial markets, Malaysia
Divisions
Faculty_of_Business_and_Accountancy
Funders
None
Publication Title
International Review of Economics & Finance
Volume
77
Publisher
Elsevier
Publisher Location
RADARWEG 29, 1043 NX AMSTERDAM, NETHERLANDS