Abstract
I disentangle asset-specific, market-wide and funding liquidity in the CDS-Bond basis outside and during the 07/09 financial crisis, stressing the importance of separating different types of liquidity. While asset-specific liquidity is cross-correlated in both the cash and derivative market, funding and market liquidity matter only for the former. Using different types of liquidity, I test several theoretical predictions of limits-to-arbitrage. I find strong evidence in favor of margin-based asset pricing and flight-to-quality effects. In addition, both asset-specific and funding liquidity are mutually reinforcing with market-wide liquidity, while there is little commonality between firm-specific and funding liquidity.