Models of financial crisis and contagion predict that an economic crisis turns into a crisis of market liquidity in the presence of borrowing constraints, information asymmetry and risk aversion. Based on the firm-level data on a sample of exposed and unexposed US stocks to the Asian currency...

Models of financial crisis and contagion predict that an economic crisis turns into a financial liquidity crisis in the presence of borrowing constraints, information asymmetry and risk aversion, and it culminates in a crisis in market liquidity through portfolio recomposition. We use firm level...