International Illiquidity

60 Pages Posted: 26 Mar 2017

See all articles by Aytek Malkhozov

Aytek Malkhozov

Board of Governors of the Federal Reserve System

Philippe Mueller

Warwick Business School Finance Group

Andrea Vedolin

Boston University - Department of Finance & Economics

Gyuri Venter

Warwick Business School

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-03

Abstract

We build a parsimonious international asset pricing model in which deviations of government bond yields from a fitted yield curve of a country measure the tightness of investors' capital constraints. We compute these measures at daily frequency for six major markets and use them to test the model-predicted effect of funding conditions on asset prices internationally. Global illiquidity lowers the slope and increases the intercept of the international security market line. Local illiquidity helps explain the variation in alphas, Sharpe ratios, and the performance of betting-against-beta (BAB) strategies across countries.

Keywords: Liquidity, Market Frictions, Capital Constraints, International CAPM

JEL Classification: G11, G12, G15

Suggested Citation

Malkhozov, Aytek and Mueller, Philippe and Vedolin, Andrea and Venter, Gyuri, International Illiquidity (2017-03). FRB International Finance Discussion Paper No. 1201, Available at SSRN: https://ssrn.com/abstract=2940138 or http://dx.doi.org/10.17016/IFDP.2017.1201

Aytek Malkhozov (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Philippe Mueller

Warwick Business School Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

Andrea Vedolin

Boston University - Department of Finance & Economics ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Gyuri Venter

Warwick Business School ( email )

University of Warwick, Gibbet Hill Road
Coventry, CV4 7AL
United Kingdom

HOME PAGE: http://sites.google.com/site/gyuriventer/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
99
Abstract Views
659
rank
31,689
PlumX Metrics