Liquidating 2016

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The medium group, which had historically better liquidity, did not experience liquidity deterioration on December 11.While our analysis focuses on price-based measures of liquidity (such as bid-ask spread and round-trip cost), market illiquidity is also often described in terms of the time needed to sell a large quantity of a given security.

The chart also shows that the bonds with the lowest returns on December 11 (those in the bottom quintile) had already been suffering steady losses in the months prior.The investor redemptions followed poor performance of the fund and forced FCF to try to sell assets to meet those redemptions.This created a direct and mechanical need for immediacy in the segment of the corporate bond market in which FCF specialized.The next chart shows average Amihud (2002) price impact coefficients for each bond group; these coefficients measure how returns change for a given unit of dollar volume.Thus, a higher price impact measure suggests that prices in the low- and high-return group move more per given unit of order flow, as proxied by the dollar volume measure.

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