EconPapers    
Economics at your fingertips  
 

Learning from Prices, Liquidity Spillovers, and Market Segmentation

Giovanni Cespa () and Thierry Focault
Additional contact information
Thierry Focault: HEC, School of Management, Paris, GREGHEC, and CEPR

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We describe a new mechanism that explains the transmission of liquidity shocks from one security to another (“liquidity spillovers”). Dealers use prices of other securities as a source of information. As prices of less liquid securities convey less precise information, a drop in liquidity for one security raises the uncertainty for dealers in other securities, thereby affecting their liquidity. The direction of liquidity spillovers is positive if the fraction of dealers with price information on other securities is high enough. Otherwise liquidity spillovers can be negative. For some parameters, the value of price information increases with the number of dealers obtaining this information. In this case, related securities can appear segmented, even if the cost of price information is small.

Keywords: Liquidity spillovers; Liquidity Risk; Contagion; Value of price information; Transparency; Colocation (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2011-04-18
New Economics Papers: this item is included in nep-cba and nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://www.csef.it/WP/wp284.pdf (application/pdf)

Related works:
Working Paper: Learning from Prices, Liquidity Spillovers, and Market Segmentation (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:284

Access Statistics for this paper

More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC.
Bibliographic data for series maintained by Dr. Maria Carannante ().

 
Page updated 2024-02-29
Handle: RePEc:sef:csefwp:284