Noise as Information for Illiquidity
We propose a market-wide liquidity measure by exploiting the connection between the amount of arbitrage capital in the market and observed “noise” in U.S. Treasury bonds—the shortage of arbitrage capital allows yields to deviate more freely from the curve, resulting in more noise in prices. Our nois...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
John Wiley & Sons, Inc
2014
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| Online Access: | http://hdl.handle.net/1721.1/88025 https://orcid.org/0000-0003-0161-9465 https://orcid.org/0000-0002-8261-0261 |
| _version_ | 1811097457890689024 |
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| author | Hu, Grace Xing Pan, Jun Wang, Jiang |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Hu, Grace Xing Pan, Jun Wang, Jiang |
| author_sort | Hu, Grace Xing |
| collection | MIT |
| description | We propose a market-wide liquidity measure by exploiting the connection between the amount of arbitrage capital in the market and observed “noise” in U.S. Treasury bonds—the shortage of arbitrage capital allows yields to deviate more freely from the curve, resulting in more noise in prices. Our noise measure captures episodes of liquidity crises of different origins across the financial market, providing information beyond existing liquidity proxies. Moreover, as a priced risk factor, it helps to explain cross-sectional returns on hedge funds and currency carry trades, both known to be sensitive to the general liquidity conditions of the market. |
| first_indexed | 2024-09-23T16:59:51Z |
| format | Article |
| id | mit-1721.1/88025 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T16:59:51Z |
| publishDate | 2014 |
| publisher | John Wiley & Sons, Inc |
| record_format | dspace |
| spelling | mit-1721.1/880252022-09-29T22:58:19Z Noise as Information for Illiquidity Hu, Grace Xing Pan, Jun Wang, Jiang Sloan School of Management Pan, Jun Wang, Jiang We propose a market-wide liquidity measure by exploiting the connection between the amount of arbitrage capital in the market and observed “noise” in U.S. Treasury bonds—the shortage of arbitrage capital allows yields to deviate more freely from the curve, resulting in more noise in prices. Our noise measure captures episodes of liquidity crises of different origins across the financial market, providing information beyond existing liquidity proxies. Moreover, as a priced risk factor, it helps to explain cross-sectional returns on hedge funds and currency carry trades, both known to be sensitive to the general liquidity conditions of the market. 2014-06-17T19:56:17Z 2014-06-17T19:56:17Z 2013-12 Article http://purl.org/eprint/type/JournalArticle 00221082 http://hdl.handle.net/1721.1/88025 Hu, Grace Xing, Jun Pan, and Jiang Wang. “Noise as Information for Illiquidity.” The Journal of Finance 68, no. 6 (December 2013): 2341–2382. https://orcid.org/0000-0003-0161-9465 https://orcid.org/0000-0002-8261-0261 en_US http://dx.doi.org/10.1111/jofi.12083 Journal of Finance Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf John Wiley & Sons, Inc MIT web domain |
| spellingShingle | Hu, Grace Xing Pan, Jun Wang, Jiang Noise as Information for Illiquidity |
| title | Noise as Information for Illiquidity |
| title_full | Noise as Information for Illiquidity |
| title_fullStr | Noise as Information for Illiquidity |
| title_full_unstemmed | Noise as Information for Illiquidity |
| title_short | Noise as Information for Illiquidity |
| title_sort | noise as information for illiquidity |
| url | http://hdl.handle.net/1721.1/88025 https://orcid.org/0000-0003-0161-9465 https://orcid.org/0000-0002-8261-0261 |
| work_keys_str_mv | AT hugracexing noiseasinformationforilliquidity AT panjun noiseasinformationforilliquidity AT wangjiang noiseasinformationforilliquidity |