A Work Project, presented as part of the requirements for the Award of a Master’s
Degree in Finance from the
NOVA School of Business and Economics.
The impact of credit conditions in market liquidity
–
a case for
European stock markets
Annex
Miguel Bordadágua Vieira de Brito, nº 865
A Directed Research Project carried out under the supervision of:
Professor João Pedro Pereira
I.
Core Model
–
Eurozone
Table 1
–
Sources of Endogenous and Exogenous Variables
Variable
Inputs
Source
TO
Number of shares traded (PX_VOLUME)
Bloomberg
Number of shares outstanding
(EQY_SH_OUT)
Bloomberg
AMIHUD
Last Price (PX_LAST)
Bloomberg
Traded volume in Euro (TURNOVER)
Bloomberg
BID_ASK
Bid Price (PX_BID)
Bloomberg
Ask Price (PX_ASK)
Bloomberg
Last Price (PX_LAST)
Bloomberg
TED_EZ
Euribor 3-month
ECB Data Warehouse
EUR Germany Sovereign (FMC 910) Zero
Coupon Yield 3 month (F91003M Index)
Bloomberg
dCUR_DEP
Currency in Circulation
ECB Data Warehouse
Overnight Deposits
ECB Data Warehouse
Deposits with agreed maturity, up to 2 years
ECB Data Warehouse
Deposits redeemable at notice, up to 3
months
ECB Data Warehouse
Deposits with agreed maturity up to 2 years
and redeemable at notice up to 3 months
ECB Data Warehouse
RES_DEP*
ECB Credit Institutions Current Account
(EULPCICA Index)
Bloomberg
ECB Balance Sheet Deposit Facility
(EBBSDEPF Index)
Bloomberg
logNCORE
MFIs Debt Securities Held
ECB Data Warehouse
MFIs Money Market Funds Shares/ Units
ECB Data Warehouse
MFIs Debt Securities Issued
ECB Data Warehouse
MFIs Remaining Liabilities
ECB Data Warehouse
MFIs External Liabilities, Extra Euro Area
ECB Data Warehouse
MRET
Index Last Price (PX_LAST)
Bloomberg
MSTDEV
Index Last Price (PX_LAST)
Bloomberg
dIR
Euro Area Harmonized Index of Consumer
Prices, Annual rate of change
Eurostat
IPI
Euro Area Industrial Production Index
(excluding construction)
–
2010 = 100
Eurostat
Table 2
–
List of Current Index Composition
AEX (25 Members):
DAX (30 Members):
Ticker
Name
Ticker
Name
1 KPN NA Equity Koninklijke KPN NV 1 ALV GY Equity Allianz SE
2 AGN NA Equity Aegon NV 2 RWE GY Equity RWE AG
3 ASML NA Equity ASML Holding NV 3 BAYN GY Equity Bayer AG
4 PHIA NA Equity Koninklijke Philips NV 4 BMW GY Equity Bayerische Motoren Werke AG
5 NN NA Equity* NN Group NV 5 CBK GY Equity Commerzbank AG
6 DL NA Equity* Delta Lloyd NV 6 DBK GY Equity Deutsche Bank AG
7 REN NA Equity RELX NV 7 BAS GY Equity BASF SE
8 WKL NA Equity Wolters Kluwer NV 8 HEN3 GY Equity Henkel AG & Co KGaA
9 AH NA Equity Koninklijke Ahold NV 9 LIN GY Equity Linde AG
10 RDSA NA Equity Royal Dutch Shell PLC 10 LHA GY Equity Deutsche Lufthansa AG
11 UNA NA Equity Unilever NV 11 SIE GY Equity Siemens AG
12 DSM NA Equity Koninklijke DSM NV 12 VOW3 GY Equity Volkswagen AG
13 GTO NA Equity* Gemalto NV 13 EOAN GY Equity E.ON SE
14 INGA NA Equity ING Groep NV 14 BEI GY Equity Beiersdorf AG
15 BOKA NA Equity Boskalis Westminster 15 HEI GY Equity HeidelbergCement AG
16 RAND NA Equity Randstad Holding NV 16 SDF GY Equity K+S AG
17 ATC NA Equity* Altice NV 17 MUV2 GY Equity Munich Re
18 AALB NA Equity Aalberts Industries NV 18 FRE GY Equity* Fresenius SE & Co KGaA
19 MT NA Equity ArcelorMittal 19 SAP GY Equity SAP SE
20 VPK NA Equity Koninklijke Vopak NV 20 MRK GY Equity Merck KGaA
21 AKZA NA Equity* Akzo Nobel NV 21 ADS GY Equity adidas AG
22 HEIA NA Equity* Heineken NV 22 DTE GY Equity Deutsche Telekom AG
23 TNTE NA Equity* TNT Express NV 23 DPW GY Equity Deutsche Post AG
24 UL NA Equity Unibail-Rodamco SE 24 FME GY Equity Fresenius Medical Care AG & Co KGaA
25 OCI NA Equity OCI NV 25 DAI GY Equity Daimler AG
26 TKA GY Equity ThyssenKrupp AG
27 IFX GY Equity Infineon Technologies AG
28 DB1 GY Equity Deutsche Boerse AG
29 VNA GY Equity* Vonovia SE
30 CON GY Equity Continental AG
CAC 40 (40 Members):
FTSE MIB (40 Members):
Ticker
Name
Ticker
Name
1 OR FP Equity L'Oreal SA 1 A2A IM Equity A2A S.p.A.
2 DG FP Equity Vinci SA 2 ATL IM Equity Atlantia SpA
3 ALU FP Equity Alcatel-Lucent 3 AZM IM Equity* Azimut Holding Spa
4 FP FP Equity TOTAL SA 4 BMPS IM Equity Banca Monte dei Paschi di Siena S.p.A.
5 AI FP Equity Air Liquide SA 5 BP IM Equity* Banco Popolare Societa Cooperativa Scarl
6 CS FP Equity AXA SA 6 BPE IM Equity Banca popolare dell'Emilia Romagna, Società cooperativa.
7 BNP FP Equity BNP Paribas SA 7 BZU IM Equity Buzzi Unicem SpA
8 BN FP Equity Danone SA 8 CNHI IM Equity* CNH Industrial N.V.
9 CAP FP Equity Cap Gemini SA 9 CPR IM Equity Davide Campari - Milano SpA
10 CA FP Equity Carrefour SA 10 EGPW IM
Equity* Enel Green Power S.p.A. 11 AC FP Equity Accor SA 11 ENEL IM Equity Enel SpA
12 SGO FP Equity Cie de Saint-Gobain 12 ENI IM Equity Eni SpA
13 VIV FP Equity Vivendi SA 13 EXO IM Equity* Exor S.p.A.
14 EI FP Equity Essilor International SA 14 FCA IM Equity* Fiat Chrysler Automobiles N.V.
15 MC FP Equity LVMH Moet Hennessy Louis
Vuitton SE 15 FNC IM Equity Finmeccanica SpA
16 ML FP Equity Cie Generale des
Etablissements Michelin 16 G IM Equity Assicurazioni Generali S.p.A. 17 KER FP Equity Kering 17 ISP IM Equity Intesa Sanpaolo S.p.A.
18 UG FP Equity Peugeot SA 18 LUX IM Equity Luxottica Group SpA
19 PUB FP Equity Publicis Groupe SA 19 MB IM Equity Mediobanca Banca di Credito Finanziario S.p.A.
20 RNO FP Equity Renault SA 20 MED IM Equity Mediolanum S.p.A.
21 SAF FP Equity Safran SA 21 MONC IM
Equity* MONCLER 22 FR FP Equity Valeo SA 22 MS IM Equity Mediaset SpA
23 SOLB BB Equity Solvay SA 23 PC IM Equity Pirelli & C. SpA
24 TEC FP Equity Technip SA 24 PMI IM Equity Banca Popolare di Milano Scarl
25 ENGI FP Equity* Engie SA 25 PRY IM Equity* Prysmian S.p.A.
26 EDF FP Equity* Electricite de France SA 26 SFER IM Equity* Salvatore Ferragamo SpA
27 ORA FP Equity Orange SA 27 SPM IM Equity Saipem SpA
28 MT NA Equity* ArcelorMittal 28 SRG IM Equity Snam S.p.A.
29 EN FP Equity Bouygues SA 29 STM IM Equity STMicroelectronics NV
30 ALO FP Equity Alstom SA 30 STS IM Equity* Ansaldo STS SpA
31 VIE FP Equity Veolia Environnement SA 31 TEN IM Equity* Tenaris S.A.
32 SAN FP Equity Sanofi 32 TIT IM Equity Telecom Italia S.p.A.
33 GLE FP Equity Societe Generale SA 33 TOD IM Equity Tod's SpA
34 SU FP Equity Schneider Electric SE 34 TRN IM Equity* TERNA - Rete Elettrica Nazionale Società per Azioni
Ticker
Name
Ticker
Name
35 LHN FP
Equity* LafargeHolcim Ltd 35 UBI IM Equity* Unione di Banche Italiane Scpa 36 AIR FP Equity Airbus Group SE 36 UCG IM Equity UniCredit S.p.A.
37 LR FP Equity* Legrand SA 37 UNI IM Equity Unipol Gruppo Finanziario S.p.A.
38 ACA FP Equity Credit Agricole SA 38 US IM Equity* UnipolSai Assicurazioni S.p.A.
39 RI FP Equity Pernod Ricard SA 39 WDF IM
Equity* World Duty Free S.p.A.
40 UL NA Equity* Unibail-Rodamco SE 40 YNAP IM
Equity* YOOX NETAPORT
* Stock was not included in the sample due to insufficient or anomalous data
Table 3
–
Eigenvalue Condition for Stability Test
Eigenvalue Modulus
.9710492 .971049
.9244298 + .1150402i .93156
.9244298 - .1150402i .93156
.8573963 + .0176548i .857578
.8573963 - .0176548i .857578
-.5573717 + .5434439i .778456
-.5573717 - .5434439i .778456
.3670674 + .6740792i .767542
.3670674 - .6740792i .767542
.6621561 + .3684825i .75778
.6621561 - .3684825i .75778
-.2533921 + .6703983i .716688
-.2533921 - .6703983i .716688
.0530029 + .6958666i .697882
.0530029 - .6958666i .697882
-.6247098 + .188423i .652507
-.6247098 - .188423i .652507
.1429587 + .633995i .649913
.1429587 - .633995i .649913
-.5446347 + .3070601i .62523
-.5446347 - .3070601i .62523
-.5317061 .531706
.2334185 + .4747528i .529032
.2334185 - .4747528i .529032
.04926243 + .480974i .48349
.04926243 - .480974i .48349
.3355127 + .08015326i .344954
.3355127 - .08015326i .344954
All the eigenvalues lie inside the unit circle.
Impulse Response Functions
Graph 1
–
Response of AMIHUD to
TED_EZ
Graph 2
–
Response of BID_ASK to
dCUR_DEP
Graph 3
–
Response of TO to RES_DEP
Graph 4
–
Response of AMIHUD to
RES_DEP
Graph 5
–
Response of BID_ASK to logNCORE
II.
Robustness Check Model
–
UK
Table 4
–
Sources of Endogenous and Exogenous Variables
Variable
Inputs
Source
TO
Number of shares traded (PX_VOLUME)
Bloomberg
Number of shares outstanding
(EQY_SH_OUT)
Bloomberg
AMIHUD
Last Price (PX_LAST)
Bloomberg
Traded volume in Euro (TURNOVER)
Bloomberg
BID_ASK
Bid Price (PX_BID)
Bloomberg
Ask Price (PX_ASK)
Bloomberg
Last Price (PX_LAST)
Bloomberg
TED_EZ
Pound Sterling ICE Libor 3-month
(BP0003M Index)
Bloomberg
United Kingdom Zero Coupon Yield
3-month Treasury Bill (I02203M Index)
Bloomberg
dCUR_DEP
Currency in Circulation
Bank of England
Overnight Deposits
Bank of England
Deposits with agreed maturity, up to 2 years
Bank of England
Deposits redeemable at notice, up to 3
months
Bank of England
RES_DEP*
MFI Balances at the Central Bank
Bank of England
Cash Ratio Deposits
Bank of England
logNCORE
MFIs Repurchase Agreements
Bank of England
MFIs Money Market Funds Shares/ Units
Bank of England
MFIs Certificates of Deposit and Paper
Issued
Bank of England
MFIs Securitized Loans
Bank of England
MRET
Index Last Price (PX_LAST)
Bloomberg
MSTDEV
Index Last Price (PX_LAST)
Bloomberg
dIR
Euro Area Harmonized Index of Consumer
Prices, Annual rate of change
Eurostat
IPI
Euro Area Industrial Production Index
(excluding construction)
–
2010 = 100
Eurostat
Table 5
–
List of Current Index Composition
FTSE 100 (101 members):
Ticker
Name
Ticker
Name
1 HSBA LN Equity HSBC Holdings PLC 36 NXT LN Equity Next PLC
2 BATS LN Equity British American Tobacco PLC 37 SKY LN Equity Sky PLC
3 BP/ LN Equity BP PLC 38 GLEN LN Equity* Glencore PLC
4 GSK LN Equity GlaxoSmithKline PLC 39 CNA LN Equity Centrica PLC
5 RDSA LN Equity* Royal Dutch Shell PLC 40 IAG LN Equity International Consolidated Airlines Grou
6 VOD LN Equity Vodafone Group PLC 41 RBS LN Equity Royal Bank of Scotland Group PLC
7 AZN LN Equity AstraZeneca PLC 42 ITV LN Equity* ITV PLC
8 DGE LN Equity Diageo PLC 43 RR/ LN Equity Rolls-Royce Holdings PLC
9 LLOY LN Equity Lloyds Banking Group PLC 44 SN/ LN Equity Smith & Nephew PLC
10 BT/A LN Equity BT Group PLC 45 OML LN Equity Old Mutual PLC
11 RDSB LN Equity Royal Dutch Shell PLC 46 LAND LN Equity Land Securities Group PLC
12 RB/ LN Equity Reckitt Benckiser Group PLC 47 WOS LN Equity Wolseley PLC
13 BARC LN Equity Barclays PLC 48 BLND LN Equity British Land Co PLC/The
14 PRU LN Equity Prudential PLC 49 MKS LN Equity Marks & Spencer Group PLC
15 SAB LN Equity SABMiller PLC 50 WTB LN Equity Whitbread PLC
16 NG/ LN Equity National Grid PLC 51 CPI LN Equity Capita PLC
17 BG/ LN Equity BG Group PLC 52 KGF LN Equity Kingfisher PLC
18 IMT LN Equity Imperial Tobacco Group PLC 53 LSE LN Equity London Stock Exchange Group PLC
19 ULVR LN Equity Unilever PLC 54 SL/ LN Equity* Standard Life PLC
20 RIO LN Equity Rio Tinto PLC 55 PSON LN Equity Pearson PLC
21 SHP LN Equity Shire PLC 56 UU/ LN Equity United Utilities Group PLC
22 AV/ LN Equity Aviva PLC 57 BNZL LN Equity Bunzl PLC
23 WPP LN Equity WPP PLC 58 CCL LN Equity Carnival PLC
24 BLT LN Equity BHP Billiton PLC 59 TW/ LN Equity Taylor Wimpey PLC
25 CPG LN Equity Compass Group PLC 60 SGE LN Equity Sage Group PLC/The
26 LGEN LN Equity Legal & General Group PLC 61 AAL LN Equity Anglo American PLC
27 BA/ LN Equity BAE Systems PLC 62 IHG LN Equity* InterContinental Hotels Group PLC
28 ARM LN Equity ARM Holdings PLC 63 BDEV LN Equity Barratt Developments PLC
29 CRH LN Equity CRH PLC 64 PSN LN Equity Persimmon PLC
30 SSE LN Equity SSE PLC 65 BRBY LN Equity* Burberry Group PLC
31 TSCO LN Equity Tesco PLC 66 DLG LN Equity* Direct Line Insurance Group PLC
32 REL LN Equity RELX PLC 67 MNDI LN Equity* Mondi PLC
33 STAN LN Equity Standard Chartered PLC 68 TUI LN Equity* TUI AG
34 ABF LN Equity Associated British Foods PLC 69 SVT LN Equity Severn Trent PLC
35 EXPN LN Equity* Experian PLC 70 AHT LN Equity Ashtead Group PLC
Ticker
Name
Ticker
Name
71 GKN LN Equity GKN PLC 87 GFS LN Equity* G4S PLC72 JMAT LN Equity Johnson Matthey PLC 88 SBRY LN Equity J Sainsbury PLC
73 STJ LN Equity St James's Place PLC 89 MRW LN Equity Wm Morrison Supermarkets PLC
74 BAB LN Equity Babcock International Group PLC 90 ADN LN Equity Aberdeen Asset Management PLC
75 TPK LN Equity Travis Perkins PLC 91 SDR LN Equity Schroders PLC
76 ISAT LN Equity* Inmarsat PLC 92 HL/ LN Equity* Hargreaves Lansdown PLC
77 III LN Equity 3i Group PLC 93 ADM LN Equity* Admiral Group PLC
78 HMSO LN Equity Hammerson PLC 94 CCH LN Equity* Coca-Cola HBC AG
79 DC/ LN Equity* Dixons Carphone PLC 95 INTU LN Equity Intu Properties PLC
80 RSA LN Equity RSA Insurance Group PLC 96 MGGT LN Equity Meggitt PLC
81 ITRK LN Equity* Intertek Group PLC 97 MERL LN Equity* Merlin Entertainments PLC
82 EZJ LN Equity easyJet PLC 98 HIK LN Equity* Hikma Pharmaceuticals PLC
83 RMG LN Equity* Royal Mail PLC 99 ANTO LN Equity Antofagasta PLC
84 BKG LN Equity Berkeley Group Holdings PLC 100 SPD LN Equity* Sports Direct International PLC
85 SMIN LN Equity Smiths Group PLC 101 FRES LN Equity* Fresnillo PLC
86 RRS LN Equity Randgold Resources Ltd
* Stock was not included in the sample due to insufficient or anomalous data
Table 6
–
Summary Statistics
No. of
Observations Mean
Standard
Deviation Min Median Max
TO_UK 69 0.002290 0.000527 0.001445 0.002200 0.004382
AMIHUD_UK 69 0.000009 0.000005 0.000004 0.000009 0.000031
BID_ASK_UK 69 0.001492 0.000340 0.001075 0.001386 0.002371
TED_UK 69 0.002120 0.001851 -0.001000 0.001600 0.007500
dCUR_DEP_UK 69 0.000081 0.000419 -0.002400 0.000100 0.000900
dRES_DEP_UK 68 0.000999 0.003965 -0.008999 0.000742 0.010989
dNCORE_UK 68 -8528.800 24704.40 -72277.00 -6345.500 63604.00
MRET 69 0.002305 0.036664 -0.072662 0.005356 0.081065
MSTDEV 69 0.009291 0.004078 0.0028253 0.008729 0.022775
dIR_UK 69 -0.043478 0.290273 -0.600000 -0.100000 0.700000
Table 7
–
Correlation Matrix
TO_UK AMIHUD_UK BID_ASK_UK TED_UK dCUR_DEP_UK dRES_DEP_UK dNCORE_UK
TO_UK 1.0000
AMIHUD_UK 0.2596 1.0000
BID_ASK_UK 0.3569 0.6633 1.0000
TED_UK 0.0079 0.5381 0.6898 1.0000
dCUR_DEP_UK 0.0458 -0.0530 -0.0157 0.0678 1.0000
dRES_DEP_UK -0.1095 0.1445 0.2902 0.5420 0.1671 1.0000
dNCORE_UK -0.1053 -0.1154 -0.2233 0.0099 -0.1763 0.1154 1.0000
MRET_UK -0.2235 0.0329 0.0974 -0.0008 -0.0182 0.3199 0.0397
MSTDEV_UK 0.5416 0.4012 0.3670 0.2730 -0.0049 0.0102 -0.0632
dIR_UK 0.0473 -0.0136 0.0450 -0.1888 0.0952 -0.0960 0.0600
dIPI_UK -0.1380 -0.0650 -0.0753 -0.0310 -0.0656 -0.0928 0.0902
MRET_UK MSTDEV_UK dIR_UK dIPI_UK
MRET_UK 1.0000
MSTDEV_UK -0.4135 1.0000
dIR_UK -0.0257 0.0273 1.0000
dIPI_UK -0.0719 -0.1068 0.0027 1.0000
Table 8
–
Augmented Dickey-Fuller Stationarity Tests
Variable / Null Hypothesis H0: Unit Root
Turnover Rate (TO_UK) -5.000***
(0.000) Amihud Illiquidity Ratio
(AMIHUD_UK)
-4.712*** (0.001) Effective Bid-Ask Spread
(BID_ASK_UK)
-5.610*** (0.000)
Eurozone TED Spread (TED_UK) -3.065**
(0.029) Currency to Deposit Ratio
(dCUR_DEP_UK)
-9.567*** (0.000) Reserves to Deposit Ratio
(RES_DEP_UK)
-6.190*** (0.000) MFIs Non-Core Funding Liquidity
(dNCORE_UK)
-8.865*** (0.000)
Stock Market Return (MRET_UK) -12.904***
(0.000) Stock Market Standard Deviation
(MSTDEV_UK)
-4.883*** (0.000)
Inflation Rate (dIR_UK) -9.779***
(0.000)
Industrial Production Index (dIPI) -12.455***
(0.000)
Table 9
–
VAR Order Selection Criteria
Sample: 2010m4
–
2015m9
Number of Observations = 66
lag
LL
LR
df
p
FPE
AIC
HQIC
SBIC
0
1941.96
1.9e-34
-57.7865
-57.3277
-56.6254
1
2067.18 250.45
49
0.000 1.9e-35* -60.0963* -58.9951* -57.3095*
2
2106.98
79.6*
49
0.004 2.8e-35
-59.8176
-58.074
-55.4051
Note: * denote optimal values for each criterion
Endogenous: dCUR_REP_UK, dRES_DEP_UK, TED_UK, dNCORE_UK, TO_UK, AMIHUD_UK, BID_ASK_UK
Exogenous: dIR_UK, dIPI_UK, MRET_UK, MSTDEV_UK, _cons
Table 10
–
Lagrange-Multiplier Test for Residual Autocorrelation
Lag
Chi-Square Statistic
df
Prob. > Chi-Square Statistic
1
60.7909
49
0.12036
2
55.4913
49
0.24337
H0: No autocorrelation at lag order
