BFS 2002

Poster Presentation

Financial turbulence is a phenomenon occurring in anti - persistent markets. In contrast, financial crises occur in persistent markets. A relationship can be established between these two extreme phenomena of long term market dependence and the older financial concept of financial (il-)liquidity. The measurement of the degree of market persistence and the measurement of the degree of market liquidity are related. To accomplish the two research objectives of measurement and simulation of different degrees of financial liquidity, I propose to boldly reformulate and reinterpret the classical laws of fluid mechanics into cash flow mechanics and to incorporate the results into dynamic term structure analysis. At first this approach may appear contrived and artificial, but the end results of these reformulations and reinterpretations are useful quantifiable financial quantities, which will assist us with the measurement, analysis and proper characterization of modern dynamic financial markets in ways that the methodology of classical comparative static financial - economic analysis does not allow. For example, this new approach allows for easy implementation and interpretation of wavelet multiresolution analysis of financial rates of return series in the time-frequency domain, such that Reynolds numbers of illiquidity can be computed.