Office of Financial Research Update: Systemwide Commonalities In Market Liquidity

The OFR released a working paper today:

Systemwide Commonalities in Market Liquidity identifies hidden liquidity regimes (high, medium and low) across a broad range of financial markets that can be used for characterizing periods of market stress and identifying underlying predictors of liquidity shocks. This regime might have allowed for meaningful predictions up to 15 trading days in advance of the 2008 financial crisis. These methods offer a potential framework for monitoring and predicting a systemwide collapse in market liquidity, which could signal a collapse of liquidity in the funding markets and a broader financial crisis.

The papers are posted at: http://financialresearch.gov/working-papers/

The OFR home page is at: www.financialresearch.gov