In placing capital market imperfections at the center of emerging market crises, the theoretical literature has associated a liquidity crisis with low foreign investment and the exit of investors from the crisis economy. However, a liquidity crisis is equally consistent with an inflow of foreign capital in the form of mergers and acquisitions (M&A). To support this hypothesis, we use a firm-lev...

This paper attempts to study the liquidity patterns and to detect any commonality across liquidity measures, using one year intraday data from India's National Stock Exchange (NSE). Using the data on 20 stocks from NSE's NIFTY Index, we found that most of the volume and spread related liquidity measures exhibit an intra-day U-shaped pattern, similar to those found for a market consisting of mar...

This study examines the asset–stock liquidity relationship for firms with location-specific assets. Using a sample of real estate investment trusts (REITs), we extend concept asset to include information based on local property market turnover. Our findings confirm that holding more cash increases REIT stock liquidity. More importantly, find positive relation between and is stronger REITs lower...

The present study suggests a model for predicting liquidity gap, based on source and cost of funds approach concerning the daily time series data (25 March 2009 to 19 March 2018), in order to control and manage the liquidity risk. Using the family of autoregressive conditional heteroscedasticity models, the behavior of bank liquidity gap is modeled and predicted. The results show that the APGAR...

In this paper, we model price dispersion effects in over-the-counter (OTC) markets to show that in the presence of inventory risk for dealers and search costs for investors, traded prices may deviate from the expected market valuation of an asset. We interpret this deviation as a liquidity effect and develop a new liquidity measure quantifying the price dispersion in the context of the US corpo...

Dan Thornton has written a very interesting paper on estimating the liquidity effect at the daily frequency. The paper starts with a nice discussion of the historical origins of the term “liquidity effect” (tracing it back to Milton Friedman, but somewhat surprisingly, no farther). The paper then discusses ways to identify the liquidity effect in daily data, and applies this discussion to criti...

We study endogenous liquidity trading in a market with long-lived asymmetric information. We distinguish between public information, tractable information that can be acquired and intractable information that cannot be acquired. Besides information asymmetry and noise, the adverse-selection spread depends on the diffusion of intractable information and on the interest rate. With endogenous liqu...

We describe how episodic illiquidity arises from a breakdown in cooperation between market participants. We first solve a one-period trading game in continuous-time, using an asset pricing equation that accounts for the price impact of trading. Then, in a multi-period framework, we describe an equilibrium in which traders cooperate most of the time through repeated interaction, providing appare...