When institutional investors rearrange their portfolios, they should consider both the temporary and the permanent price impacts. After a temporary price impact the order book fully recovers, whereas a permanent price impact changes the equilibrium price, having effects on the resulting...

We model the dynamics of ask and bid curves in a limit order book market using a dynamic semiparametric factor model. The shape of the curves is captured by a factor structure which is estimated nonparametrically. Corresponding factor loadings are assumed to follow multivariate dynamics and are...

The credit crisis and the following sovereign debt crisis during 2007 and 2012 led to an increasing volatility of European corporate bond credit spreads. European investment grade credit spreads rose in 2007 and 2008 from 50 BP to over 350 BP. In the years after the credit spreads declined to...

Classical financial market theories built upon the assumption of a perfect market have been coping with frictions on both developed and emerging markets. There are numerous factors affecting the operation of financial markets and their participants' behavior, but illiquidity is a continuous...

Since the global financial crisis, economic literature has highlighted banks' inclination to bolster up their liquid asset positions once the aggregate interbank funding market experiences a dry-up. To this regard, we show that liquidity hoarding and its detrimental effects on credit can also be...

Liquidity and market risk are key considerations in financial markets, especially in times of financial crises. For this reason, regulatory attention to and measures in these fields have been on the rise for the past years. Based on practical experience, regulations aiming at ensuring funding...

We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest....

Investment funds are highly connected with each other, but also with the broader financial system. In this paper, we quantify potential vulnerabilities arising from funds' connectedness. While previous work exclusively focused on indirect connections (overlapping asset portfolios) between...

Investment funds are highly connected with each other, but also with the broader financial system. In this paper, we quantify potential vulnerabilities arising from funds' connectedness. While previous work exclusively focused on indirect connections (overlapping asset portfolios) between...