Systematic liquidity and leverage

Published: Jul 25, 2016
Abstract
Does trader leverage exacerbate the liquidity co-movement that we observe during crises? We exploit the threshold rules governing margin trading eligibility in India to identify a causal relationship between trader leverage and the extent to which a stock’s liquidity covaries with the liquidity of other stocks. We find that trader leverage causes sharp increases in comovement during severe market downturns. For our sample of stocks, the...
Paper Details
Title
Systematic liquidity and leverage
Published Date
Jul 25, 2016
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