22nd Welch College of Business Research Forum
Sacred Heart University Assistant Professor of Finance, Dr. Rupendar Paliwal, will present his paper titled, “Financial Contagion and Market Liquidity: Evidence from the Asian Crisis” at the 22nd Jack Welch College of Business Research Forum on Thursday, March 26th at noon in the Roncalli Hall lounge. The agenda and abstract are as follows: lunch from 12pm-12:30pm; presentation from 12:30pm-1:15pm; question and answer session from 1:15pm-1:30pm.
Abstract: Financial Contagion and Market Liquidity: Evidence from the Asian Crisis
Models of financial crisis and contagion predict that an economic crisis turns into a crisis in market liquidity in the presence of borrowing constraints, information asymmetry and risk aversion. Based on firm-level data on a sample of exposed and unexposed U.S. stocks to the Asian currency crisis, we find a significant increase (decrease) in the crisis period bid-ask spreads (depth) and their volatilities for both groups. While our results underscore the imprints of flight to quality, we detect little causal patterns in liquidity innovations. The drop in crisis period market liquidity seems to be attributable to an increase in both the asymmetric information and fixed costs of trading. Finally, we find that the deterioration in market liquidity provides a partial explanation for the crisis-induced abnormal returns.
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