The Asymmetric Impact of Funding Liquidity Risk on the Volatility of Stock Portfolios during the COVID-19 Crisis

KOCAARSLAN B., Soytas U.

SUSTAINABILITY, vol.13, no.4, pp.1-12, 2021 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 13 Issue: 4
  • Publication Date: 2021
  • Doi Number: 10.3390/su13042286
  • Journal Name: SUSTAINABILITY
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Social Sciences Citation Index (SSCI), Scopus, Aerospace Database, CAB Abstracts, Communication Abstracts, Food Science & Technology Abstracts, Geobase, INSPEC, Metadex, Veterinary Science Database, Directory of Open Access Journals, Civil Engineering Abstracts
  • Page Numbers: pp.1-12
  • Middle East Technical University Affiliated: No

Abstract

In this study, we identify economic transmission channels through which changes in funding liquidity conditions in interbank markets asymmetrically affect volatilities of stock portfolios during the COVID-19 crisis. For the purpose of this study, the quantile regression approach is utilized. Controlling for macroeconomic factors, we document that volatilities of high-risk portfolios increase more in response to a deterioration in funding liquidity conditions compared to less risky portfolios. More importantly, this increase intensifies in high-volatility periods of high-risk portfolios, which implies the impact is stronger during uncertain economic environments, such as the one caused by the COVID-19 outbreak.