拉斯维加斯9888

Finance Seminar（2014-34）

Topic:A Market-Based Funding Liquidity Measure

Speaker:Zhuo Chen, Tsinghua University

Time:Wednesday, 3 December, 10:00-11:30

Location:Room 217, Guanghua Building 2

Abstract:In this paper, we construct a tradable funding liquidity measure from stock returns. Using a stylized model, we show that the returns of a beta-neutral portfolio, which exploits investors' borrowing constraints (Black (1972)), depend on both the market-wide funding liquidity shock and stocks' sensitivities to such shock, where the latter are governed by margin requirements. We extract the funding liquidity shock as the return spread between two beta-neutral portfolios constructed using stocks with high and low margins. Our return-based measure is correlated with funding liquidity proxies derived from other markets but has the benefit of being tradable. It delivers a positive risk premium, which cannot be explained by existing risk factors. Using our measure, we find that while hedge funds in general are inversely affected by funding liquidity shocks, some funds exhibit funding liquidity management skill and thus earn higher returns. In addition, adverse shocks affect the real economy by lowering investment.