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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
We build a parsimonious international asset pricing model in which deviations of government bond yields from a fitted yield curve of a country measure the tightness of investors' capital constraints. We compute these measures at daily frequency for six major markets and use them to test the model-predicted effect of funding conditions on asset prices internationally. Global illiquidity lowers the slope and increases the intercept of the international security market line. Local illiquidity helps explain the variation in alphas, Sharpe ratios, and the performance of betting-against-beta (BAB) strategies across countries.
Cite this item
Aytek Malkhozov & Philippe Mueller & Andrea Vedolin & Gyuri Venter, International Illiquidity, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 1201, Mar 2017.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
Keywords: Liquidity ; Market Frictions ; Capital Constraints ; International CAPM
This item with handle RePEc:fip:fedgif:1201
is also listed on EconPapers
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