Funding Liquidity and Market Liquidity: The Broker-Dealer Perspective

• 成果类型: Article
• 署名作者: Macchiavelli, Marco; Zhou, Xing (Alex)
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4053
• 发表日期: 2022
• 页码: 3379-3398
• 关键词: Funding liquidity; market liquidity; triparty repo; broker-dealer; money market fund; Corporate bond

摘要

We provide direct evidence of how dealers' funding liquidity affects their liquidity provision in securities markets. Worse funding liquidity (higher repo haircuts and rates) leads to larger bid-ask spreads and transaction costs in corporate bonds. We also find that dealers' relationships with money funds are important determinants of their repo haircuts and rates. Using dealers' exposure to the 2016 Securities and Exchange Commission (SEC) money fund reform as an instrument, we show that funding liquidity indeed has a causal effect on market liquidity. Finally, dealers with lower funding liquidity tend to have smaller market shares and execute more trades on an agency basis.