Market Liquidity -- Theory and Empirical Evidence

Dimitri Vayanos and Jiang Wang

No 18251, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we survey the theoretical and empirical literature on market liquidity. We organize both literatures around three basic questions: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how illiquidity affects expected asset returns. Using a unified model from Vayanos and Wang (2010), we survey theoretical work on six main imperfections: participation costs, transaction costs, asymmetric information, imperfect competition, funding constraints, and search---and for each imperfection we address the three basic questions within that model. We review the empirical literature through the lens of the theory, using the theory to both interpret existing results and suggest new tests and analysis.

JEL-codes: D42 D53 D82 D83 G01 G11 G12 G14 (search for similar items in EconPapers)
Date: 2012-07
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Published as Market Liquidity—Theory and Empirical Evidence, in George Constantinides, Milton Harris, and Rene Stulz, eds.: Handbook of the Economics of Finance, 2013, Chapter 19, North Holland, Amsterdam. (With Jiang Wang)

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Related works:
Working Paper: Market liquidity - theory and empirical evidence (2012)
Working Paper: Market Liquidity - Theory and Empirical Evidence (2012)
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