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What Factors Shape the Liquidity Levels of Euro Area Sovereign Bonds?

Authors
  • Jurksas, Linas
Type
Published Article
Journal
Open Economics
Publisher
De Gruyter
Publication Date
Dec 01, 2018
Volume
1
Issue
1
Pages
154–166
Identifiers
DOI: 10.1515/openec-2018-0009
Source
De Gruyter
Keywords
License
Green

Abstract

The purpose of this paper is to determine the factors that shape the liquidity levels of euro area sovereign bonds. The values of liquidity measure and explanatory variables were calculated from the limitorder book dataset for almost five hundred bonds from six largest euro area sovereign bond markets. The created variables were used in a cross-sectional regression model. The results revealed that characteristics of sovereign bonds are indeed highly linked with bond liquidity levels, and these effects become even stronger during the regimes of lower market liquidity. Contrary to the statements of market participants and findings of many other studies, the magnitude of trading automation and obligatory requirements imposed on dealers were found to be negatively linked with the liquidity level of sovereign bonds.

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