{"title":"Liquidity risk and CMBX microstructure","authors":"Andreas D. Christopoulos, Joshua G. Barratt","doi":"10.1002/rfe.1193","DOIUrl":null,"url":null,"abstract":"This is the first paper in the literature to focus on CMBX price formation with dual techniques of liquidity estimation. In this paper, we introduce a generalizable method using principal component analysis to estimate daily risk decompositions of default, interest rate, liquidity and excess liquidity from previously simulated reduced form monthly risk decompositions. Our method generates these measures for CMBX. To assess liquidity estimates, we compare our risk decomposition measures of liquidity to classical microstructure effective bid–ask spreads, daily. We find our measures to be significant in explaining effective bid–ask spreads over 12 years of daily history and in 20-day forecasts.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2000,"publicationDate":"2024-01-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Financial Economics","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1002/rfe.1193","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
This is the first paper in the literature to focus on CMBX price formation with dual techniques of liquidity estimation. In this paper, we introduce a generalizable method using principal component analysis to estimate daily risk decompositions of default, interest rate, liquidity and excess liquidity from previously simulated reduced form monthly risk decompositions. Our method generates these measures for CMBX. To assess liquidity estimates, we compare our risk decomposition measures of liquidity to classical microstructure effective bid–ask spreads, daily. We find our measures to be significant in explaining effective bid–ask spreads over 12 years of daily history and in 20-day forecasts.
期刊介绍：
The scope of the Review of Financial Economics (RFE) is broad. The RFE publishes original research in finance (e.g. corporate finance, investments, financial institutions and international finance) and economics (e.g. monetary theory, fiscal policy, and international economics). It specifically encourages submissions that apply economic principles to financial decision making. For example, while RFE will publish papers which study the behavior of security prices and those which provide analyses of monetary and fiscal policies, it will offer a special forum for articles which examine the impact of macroeconomic factors on the behavior of security prices.
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