Copyright 2009 by Julieta Frank and Philip Garcia. All rights reserved. Readers may make verbatim copies of this document for non‐commercial purposes by any means, provided that this copyright notice appears on all such copies. Abstract Understanding the determinants of liquidity costs in agricultural futures markets is hampered by a need to use proxies for the bid-ask spread which are often bi...

liquidity is the most important aspect of stock markets development. this research investigates the effect of share issue privatization (sip) on tehran stock exchange (tse) liquidity. regarding the three assessable measures in sip, three hypotheses based on the number of privatized firms, the volume and the value of the sold stocks were defined and tested. in this research, the tse liquidity is...

Employing a new proxy for liquidity, this paper examines its impact on stock returns in the context of the Fama-French framework. We augment the Carhart four-factor model with a liquidity factor and employ individual and system regression techniques. Using an extensive dataset drawn from the Australian equities market, we find a significant illiquidity premium and evidence that liquidity explai...

One of the most important lessons learned from the recent financial crisis is that liquidity risk is fundamentally different from other forms of risk such as market risk and credit risk. Liquidity risk, viewed earlier as a second order risk, is now considered a major risk class. The crisis showed us how quickly a risk which starts as a market or credit risk transforms into a liquidity event and...

We use a rational expectations model to examine how public disclosure requirements affect listing decisions by rent-seeking corporate insiders, and allocation decisions by liquidity traders seeking to minimize trading costs. We find that exchanges competing for trading volume engage in a ‘race for the top’ whereunder disclosure requirements increase and trading costs fall. This result is robust...

In standardWalrasian macro-finance models, pecuniary externalities such as fire sales lead to overinvestment in illiquid assets or underprovision of liquidity. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the externality and find that this is far from guaranteed. In a standard model of liquidity shocks, when liquidity is sufficiently scarce, Cour...

This paper develops a search-theoretic model of the cross-sectional distribution of asset returns, abstracting from risk premia and focusing exclusively on liquidity. I derive a float-adjusted return model (FARM), explaining the pricing of liquidity with a simple linear formula: In equilibrium, the liquidity spread of an asset is proportional to the inverse of its free float, the portion of its...

This paper provides a framework to analyse emergency liquidity assistance of central banks on financial markets in response to aggregate and idiosyncratic liquidity shocks. The model combines the microeconomic view of liquidity as the ability to sell assets quickly and at low costs and the macroeconomic view of liquidity as a medium of exchange that influences the aggregate price level of goods...

Information spillover and liquidity externality across securities is of practical importance to both practitioners and policy makers. We empirically examine how information spillover facilitates liquidity externalities between the equity and corporate bond markets. An event study was conducted by comparing the change of liquidity of stocks whose corporate bonds are TRACE-eligible with that of n...

We lay out and simulate a multi-agent, multi-period model of an RTGS payment system. At the beginning of the day, banks choose how much costly liquidity to allocate to the settlement process. Then, they use it to execute an exogenous, random streamof payment orders. If a bank’s liquidity stock is depleted, payments are queued until new liquidity arrives from other banks, imposing costs on the d...