Liquidity as Social Expertise

Pablo Kurlat ()

No 21118, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper proposes a theory of liquidity dynamics. Illiquidity results from asymmetric information. Observing the historical track record teaches agents how to interpret public information and helps overcome information asymmetry. There can be an illiquidity trap: too much asymmetric information leads to the breakdown of trade, which interrupts learning and perpetuates illiquidity. Liquidity falls in response to unexpected events that lead agents to question their valuation models, especially in newer markets, may be slow to recover after a crisis and is higher in periods of stability.

JEL-codes: D82 D83 G14 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-mic and nep-mst
Note: AP EFG
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Citations: View citations in EconPapers (1)

Published as KURLAT, P. (2018), Liquidity as Social Expertise. The Journal of Finance, 73: 619-656. doi:10.1111/jofi.12606

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Related works:
Journal Article: Liquidity as Social Expertise (2018)
Working Paper: Liquidity as Social Expertise (2014)
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