Leverage ratio and liquidity - final.pdf (583.59 kB)
The leverage ratio and liquidity in the gilt and gilt repo markets
journal contribution
posted on 2023-06-09, 19:59 authored by Andreea Bicu-Lieb, Louisa ChenLouisa Chen, David Elliott ?Market participants argue that a significant unintended consequence of post-crisis regulatory leverage ratio requirements is a reduction in the liquidity of fixed income markets. We assess this claim in the context of the gilt (U.K. government bond) and gilt repo markets over the period 2010 to 2017. We find that gilt repo liquidity worsened during the period when U.K. leverage ratio policy was introduced, and that gilt liquidity worsened conditional on factors such as funding costs and inventory risk. We also find evidence that gilt repo liquidity has become less resilient. However, evidence from heterogeneity in dealer behavior is inconclusive regarding a causal link between leverage ratio requirements and the reduction in market liquidity.
History
Publication status
- Published
File Version
- Accepted version
Journal
Journal of Financial MarketsISSN
1386-4181Publisher
ElsevierExternal DOI
Volume
48Page range
1-29Article number
a100510Department affiliated with
- Accounting and Finance Publications
Research groups affiliated with
- Business and Finance Research Group Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2019-12-17First Open Access (FOA) Date
2021-04-01First Compliant Deposit (FCD) Date
2019-12-16Usage metrics
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