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5 edition of Market liquidity, asset prices and welfare found in the catalog.

Market liquidity, asset prices and welfare

Jennifer Huang

Market liquidity, asset prices and welfare

by Jennifer Huang

  • 6 Want to read
  • 22 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English


Edition Notes

StatementJennifer Huang, Jiang Wang.
SeriesNBER working paper series -- working paper 14058, Working paper series (National Bureau of Economic Research : Online) -- working paper no. 14058.
ContributionsWang, Jiang, 1959-, National Bureau of Economic Research.
Classifications
LC ClassificationsHB1
The Physical Object
FormatElectronic resource
ID Numbers
Open LibraryOL17088118M
LC Control Number2008610888

  Liquidity is a complex concept. Stated simply, it is the ease of trading a security. This survey reviews the literature that studies the relationship between liquidity and asset prices. We review the theories about how liquidity affects a security’s required return and discuss the empirical connection between the two. Measuring and Predicting Liquidity in the Stock Market DISSERTATION der Universit˜at St. Gallen, Hochschule fur˜ Wirtschafts-, Rechts- und Sozialwissenschaften (HSG) zur Erlangung der Wurde˜ eines Doktors der Wirtschaftswissenschaften vorgelegt von Rico von Wyss von Zuric˜ h Genehmigt auf Antrag der Herren Prof. Dr. Heinz Zimmermann und Cited by:

  And, order book depth, while lower now than in and , does not appear low by historical standards. 2 For the corporate bond market, some evidence even suggests improving market liquidity. For example, excluding the financial crisis period, the realized bid-ask spread calculated from TRACE data has been trending down since the early. Downloadable (with restrictions)! This study analyzes economies with an essential role for liquid assets in the exchange process. The model can generate multiple stationary equilibria, across which asset prices, market participation, capitalization, output and welfare are positively related. It can also generate a variety of nonstationary equilibria, even when fundamentals are deterministic.

This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large position. Equilibrium prices of two riskless assets, one liquid and one carrying transaction costs, in continuous-time OLG model. Price differential (liqudity premium) decreases with relative supply of liquid asset. Strategic Trading and Welfare in a Dynamic Market, Review of Economic Studies, , 66,


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Market liquidity, asset prices and welfare by Jennifer Huang Download PDF EPUB FB2

This paper presents an equilibrium model for the demand and supply of liquidity and its impact on asset prices and welfare. We show that when constant market presence is costly, purely idiosyncratic shocks lead to endogenous demand of liquidity and large price deviations from fundamentals.

Moreover, market forces fail to lead to efficient supply of liquidity, which calls for potential policy interventions. The book shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation.

Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity by: welfare while forcing more liquidity supply asset prices and welfare book, through coordination of market participants) can improve welfare.

⁄ Huang is from McCombs School of Business, the University of Texas at Austin (tel: () Cited by: For example, lowering the cost of supplying liquidity on the spot (e.g., through direct injection of liquidity or relaxation of ex post margin constraints) can decrease welfare while forcing more liquidity supply (e.g., through coordination of market participants) can improve welfare.

Market liquidity, asset prices, and welfare. This paper represents an equilibrium model for the demand and supply of liquidity and its impact on asset prices and welfare. We show that, when constant market presence is costly, purely idiosyncratic shocks lead to endogenous demand of liquidity and large price deviations from fundamentals.

This pioneering book is about a third type of liquidity: the impact of a transaction on the price of an asset. In particular, the authors concern themselves with liquidity in the equities market.

I’ve spent a quarter century trading bonds, rather than by:   Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity services. When these become constrained, there is a liquidity crisis, which leads to downward price and liquidity spiral.

Overall, this book demonstrates the important role of liquidity in asset pricing. Introduction Model Equilibrium Asset Price Welfare Conclusion Liquidity and Asset Prices Calibrating the Impact of Illiquidity on Stock Prices α σX c/P¯ (%) Cost as % of Average Trade Amount In an economy with frictions, the price depends additionally on the security’s liquidity and the liquidity of all other securities.

One strength of a frictionless economy is that a security’s cash flows and the pricing kernel are sufficient statistics for the pricing opera- tion described by Equation ().

Panel C: Firm-time level M/B ratio The market-to-book ratio of the firm at quarter end. Net sales The net sales experienced by a firm defined as the shares held by mutual funds between the previous and the current quarter, divided by the firm’s number of Cited by: Search in Asset Markets: Market Structure, Liquidity, and Welfare Article in American Economic Review 97(2) May with 45 Reads How we measure 'reads'.

We investigate five market variables that are often discussed in the literature (e.g., Vives, ; Easley et al., ; Goldstein and Yang,Dávila and Parlatore, ): price informativeness, the cost of capital, return volatility, price volatility, and market liquidity.

We find that for price informativeness, the informed capital Author: Shiyang Huang, Zhigang Qiu, Liyan Yang, Liyan Yang, Liyan Yang. about systemic risk in determining market liquidity, asset prices and welfare. Even a small amount of adverse selection in the asset market can lead to fire-sale pricing and possibly to a market breakdown if it is accompanied by a flight-to-liquidity, a misassessment of systemic risk, or uncertainty about asset values.

The ability to tradeCited by: 8. section focuses on the welfare economics of financial crises from the point of view of optimal risk-sharing. One of the important elements of this discussion is the relationship between market provision of liquidity and its effect on asset prices, which is further explored in Section 4.

In Section 5 we return. they go bankrupt. The market they sell the asset on will involve liquidity pricing. In order to induce some market participants to hold liquidity to purchase assets, there must be states in which asset prices are “low” so the participants can make a profit and cover the opportunity cost of holding the short asset.

This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large by: information for market liquidity and price efficiency, two key variables that represent market quality and are of central importance to regulators.

Market liquidity refers to a market’s ability to facilitate the purchase or sale of an asset without drastically affecting the asset’s price. PriceFile Size: 1MB. To summarize, the results with illiquidity portfolios suggest that liquidity risk matters while controlling for book to market, while the results with B/M-by-size portfolios suggest that liquidity risk does not explain the book-to-market effect.

(Pastor and Stambaugh, reach a similar conclusion.) Hence, our simple model fails to explain Cited by:   Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price.

In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset's price. Liquidity is about how big the trade-off is between the speed of the sale and the price it can be sold for.

In a liquid market, the trade-off is mild: selling quickly will not reduce the price much. This book presents the thought and proof on the impact of market liquidity and liquidity hazard on asset prices and on basic securities market effectivity. Illiquidity means incurring a high transaction worth, which includes a huge value impact when trading and coping with a .The way in which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook.

Market Liquidity offers a more accurate and authoritative take on liquidity and price discovery. As a particular application of this idea, we show how small changes in fundamentals, including the information structure, can generate large responses in transaction patterns, liquidity, asset prices, and welfare, and we suggest, if somewhat tentatively, that this may have something to do with recent financial by: