EconPapers    
Economics at your fingertips  
 

Emerging market liquidity and crises

Eduardo Levy Yeyati (), Sergio Schmukler () and Neeltje Van Horen ()

No 4445, Policy Research Working Paper Series from The World Bank

Abstract: Whereas conventional wisdom argues that markets shut down during crises, with sellers struggling to find buyers, we find that markets continue to operate during financial turmoil, even in narrow and volatile emerging economies. Simple event studies indicate that both trading volume and trading costs increase in crisis times. Prices change more with each dollar transacted (pushing the Amihud illiquidity measure up) and bid-ask spreads widen. More generally, econometric estimates show that large price downturns, typical of crises, are associated with higher trading activity and increased trading costs, with trading activity declining only later as crises progress. Thus, while trading activity tends to be negatively related to trading costs during tranquil times (and across securities), this relation appears to break down during crises. These results are consistent with the analytical literature on portfolio rebalancing by heterogeneous agents in times of crises.

Keywords: Debt Markets; Markets and Market Access; Emerging Markets; Economic Theory&Research (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mst
Date: 2007-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... ered/PDF/wps4445.pdf (application/pdf)

Related works:
Journal Article: Emerging Market Liquidity and Crises (2008) 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:wbk:wbrwps:4445

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().

 
Page updated 2019-11-07
Handle: RePEc:wbk:wbrwps:4445