RT Journal Article SR Electronic T1 Valuing Financial Assets with Liquidity Discount:
An Implication for Basel III JF The Journal of Fixed Income FD Institutional Investor Journals SP 45 OP 63 DO 10.3905/jfi.2012.22.3.045 VO 22 IS 3 A1 Ren-Raw Chen A1 William Filonuk A1 Dilip K. Patro A1 An Yan YR 2012 UL https://pm-research.com/content/22/3/45.abstract AB The unprecedented financial crisis in 2007 and 2008 and the largest bankruptcy in U.S. history prompted expedited regulation in the financial industry. A new Basel Accord has been proposed to further regulate the main risk that caused the crisis: liquidity risk. In a recent article, Chen [2012] presents a liquidity discount model in which financial securities can be evaluated with substantial discounts at the presence of a liquidity squeeze in the marketplace. In this article, we adopt this model to evaluate a selection of the 23 largest U.S. financial institutions (assets over $100 billion) to investigate the liquidity impact during the crisis period. We calibrate the model to market information such as market capitalization and volatility. We find that the model can provide significant predictive power of a bank’s liquidity health.TOPICS: Financial crises and financial market history, big data/machine learning, information providers/credit ratings