... interesting to consider if changes in liquidity in one market will affect changes in liquidity of the opposing market. Then the macroeconomic fundamentals that cause such changes to take place need to be examined. This paper uses data on average monthly bid-ask spreads1 in the JP Morgan Emerging Market Bond Index (Global) and the Merrill Lynch US High-Yield Fund Index as a measure of liquidity in order to examine the cross-liquidity effects of the two bond markets.2 A set of macroeconomic explanatory variables are used in a multivariate cointegration framework,3 in order to examine the causes of changes in liquidity of the two asset classes. The conclusions that are derived follow. There is indeed a long run, steady state relationship that exists between the two opposing asset classes, suggesting that the cross-liquidity effects of each type of bond are significant in influencing investor's choices. There does exist a common macroeconomic variable that ...

See this essay or coursework document in full right now