I have published a column titled “The foreign exchange market: Not as liquid as you may think” on VoxEU.org (together with Loriano Mancini and Angelo Ranaldo). The column presents the main results and policy implications of our recent paper on “Liquidity in the Foreign Exchange Market: Measurement, Commonality, and Risk Premiums” in an accessible way.
Back to academia
After working in the financial industry for 15 months I will go back to academia and start a position as Assistant Professor of Finance at the University of St. Gallen. I am very much looking forward to joining the Swiss Institute of Banking and Finance in August 2012.
Publication
The paper “Liquidity in the Foreign Exchange Market: Measurement, Commonality, and Risk Premiums” has been (conditionally) accepted and is now forthcoming in the Journal of Finance. You can find the last working paper version of the paper on SSRN.
New version of the paper “Liquidity in the Foreign Exchange Market: Measurement, Commonality, and Risk Premiums”
A new version of the paper “Liquidity in the Foreign Exchange Market: Measurement, Commonality, and Risk Premiums” is available on SSRN.
We have rewritten the abstract, introduction, conclusion, and various sections of the paper. In the new version, we focus on the main, more surprising findings on liquidity and their implications for asset managers and central banks. In particular we highlight the novel economic mechanism through which liquidity risk impacts carry trade returns that emerges from our analysis.
Moreover, we have extended the analysis of the link between FX liquidity and equity liquidity. We now also compare FX liquidity measures to market-wide liquidity measures of the corporate bond market and 10-year U.S. Treasury bonds. Liquidities across all markets appear to comove significantly, suggesting that liquidity risk is indeed a global phenomenon across asset classes.
We have performed various additional robustness checks which confirm the results reported in the paper. We have collected additional findings in the separate appendix and streamlined the paper accordingly.