TY - JOUR

T1 - Bank funding constraints and stock liquidity

AU - Molyneux, Philip

AU - Wang, Qingwei

AU - Xie, Ru

AU - Zhao, Binru

PY - 2023/1

Y1 - 2023/1

N2 - 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.

AB - 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.

KW - Funding spread

KW - stock liquidity

KW - idiosyncratic liquidity risk

KW - price of liquidity

U2 - 10.1080/1351847X.2022.2098046

DO - 10.1080/1351847X.2022.2098046

M3 - Article

VL - 29

SP - 1

EP - 16

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

IS - 1

ER -