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Bank funding constraints and stock liquidity

Molyneux, Philip, Wang, Qingwei ORCID: https://orcid.org/0000-0002-3695-7846, Xie, Ru and Zhao, Binru 2022. Bank funding constraints and stock liquidity. European Journal of Finance
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Abstract

This paper examines the relationship between bank marginal funding constraints and stock liquidity. Using bank credit default swap (CDS) spreads we show that increased funding constraints weaken bank stock liquidity (as measured by liquidity tightness, depth, and resilience). This effect strengthens during crises periods. Deteriorating bank stock liquidity is in turn priced into excess stock returns. In addition, we find that during liquidity crises, monetary expansion can break the relationship between funding costs and stock liquidity. Heightened monetary policy uncertainty, however, strengthens this relation.

Item Type: Article
Date Type: Published Online
Status: In Press
Schools: Business (Including Economics)
Subjects: H Social Sciences > HG Finance
Publisher: Routledge
ISSN: 1351-847X
Date of First Compliant Deposit: 14 July 2022
Date of Acceptance: 20 June 2022
Last Modified: 11 Nov 2022 00:32
URI: https://orca.cardiff.ac.uk/id/eprint/150972

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