Market Liquidity And Crisis Events-Evidence From The 2008 Financial Crisis And Euro Debt Crisis

NguyenThiThuyHanh TV pdf Market Liquidity And Crisis Events Evidence From The 2008 Financial Crisis And Euro Debt Crisis MINGHSIN UNIVERSITY OF SCIENCE AND TECHNOLOGY INSTITUTE OF MANAGEMENT A THESIS[.]

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Market Liquidity And Crisis Events-Evidence From The 2008 Financial Crisis And Euro Debt

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MINGHSIN UNIVERSITY OF SCIENCE AND TECHNOLOGY

INSTITUTE OF MANAGEMENT

A THESIS FOR THE MASTER DEGREE

Market Liquidity And Crisis Events-Evidence From The 2008

Financial Crisis And Euro Debt Crisis

Graduate Student: Nguyen Thi Thuy Hanh

Advisor: Shu-Ying Lin

Taiwan, June 2014

Abstract

This study investigates market liquidity and its relation to crisis events and market return Using the liquidity measure, a time-series of stock market liquidity in Taiwan Stock Exchange are presented from 2008 to 2012 A dramatic decrease in stock market liquidity has occurred during the financial crisis and the Euro debt crisis Based

on the panel data regression with fixed firm effect, the results show that the crisis events

do affect the market liquidity and the effect of 2008 financial crisis is stronger than of Euro debt crisis Strong evidence presents that market liquidity is impaired when stock market downturn especially in the financial crisis and the Euro debt crisis, implying a positive relationship between market risk and liquidity risk Moreover the impact of market downturn on the liquidity in the 2008 financial crisis is stronger than that in the Euro debt crisis Besides, we also examine the phenomenon of time-series movements

in liquidity The results demonstrate that liquidity commonality varies over time In addition, the impact of 2008 financial crisis on commonality in liquidity is stronger than Euro debt crisis Furthermore, the results support the idea that the correlated trading of institutional (individual) investors has a strong impact on level of common variation in liquidity The evidence indicates to us that the institutional investors have more power

to liquidity commonality than individual investors

Keywords: Financial Crisis, Market Liquidity, Crisis Event

Acknowledgement

The success and final result of this thesis required a lot of guidance and assistance from many people and I am extremely fortunate to have got this all along the completion of my thesis work Whatever I have done is only due to such guidance and assistance and I would not forget to thank them

Firstly, I respect and thank Associate Professor Shu-Ying Lin for giving me an opportunity to do this thesis work in Taiwan stock market and providing me all support, instruction which let me complete the thesis on time I am extremely grateful to them for providing such a nice support, guidance and inspiration, especially though they had busy working schedule Secondly, I would like to say thank to Assistant Professor Pei-Fang Hsieh and Assistant Professor Da-Ren Chen for giving me encouragements, suggestions, and guidance during this working process Moreover, I was very appreciative because of their attendance in my oral examination and giving me the best guidance

Finally, I am thankful to and fortunate enough to get constant encouragement and support from all lecturers and staffs of Minghsin University of Science and Technology which helped me in successfully completing my thesis Thank you so much!

Table of Contents

Abstract i

Acknowledgement ii

Table of Contents iii

List of tables iv

List of figures v

CHAPTER 1: INTRODUCTION 1

CHAPTER 2: LITERATURE REVIEW 5

2.1 Liquidity in crisis 5

2.2 Commonality in liquidity 8

2.3 Crisis event 12

CHAPTER 3: METHODOLOGY 15

3.1 Data 15

3.2 Variables definition 15

3.2.1 Liquidity proxies 15

3.2.2 Control variables 16

3.2.3 Defined Crisis events 17

3.3 Hypothesis 18

3.4 Analysis model 19

3.4.1 Market liquidity 19

3.4.2 Commonality in liquidity 20

3.5 Descriptive information 23

CHAPTER 4: EMPIRICAL RESULTS 25

4.1 Market liquidity 25

4.1.1 The description of market liquidity 25

4.1.2 The effect of crises on market liquidity 26

4.1.3 The impact of market return on market liquidity 27

4.2 Liquidity commonality 29

4.2.1 Liquidity commonality and the crises 29

4.2.2 Liquidity commonality over time 31

4.2.3 The impact of investors on liquidity commonality 33

CHAPTER 5: CONCLUSION 36

REFERENCES 38

List of tables

TABLE 1: Summary statistics 24

TABLE 2: The impact of the crises on market liquidity 27

TABLE 3: The impact of the market return on market liquidity 29

TABLE 4: Market-wide commonality in liquidity: Crisis vs non-crisis 31

TABLE 5: The impact of investors on liquidity commonality 35

List of figures

Figure 1: Time-series of daily CDS of Greek from January 2008 to December 2013 21 Figure 2: Time-series plot of Daily Market liquidity 26 Figure 3: Liquidity commonality over time 32