We show how a high degree of commonality in investor liquidity shocks can diminish incentives for intermediaries to keep markets open and lead to market collapse, even without information asymmetry or news affecting fundamentals. We motivate our model using the perpetual floating rate note...

We study the collapse of the market for perpetual floating rate notes (perps). The perp market was launched in 1984, and its first two years were characterized by explosive growth in which issues by high quality borrowers were placed with institutional investors and traded in liquid secondary...

I explore the effects of trade-size dependent transaction taxes on market liquidity and information acquisition. Transaction taxes cause strategic informed traders to scale back their aggregate trading, which, surprisingly, causes both market liquidity and informed investor profits to decline in...

This paper examines ex ante effects of quot;circuit breakersquot; (mandated trading halts). We show that circuit breakers, by causing agents to suhoptimally advance trades in time, may have the perverse effect of increasing price variability and exacerbating price movements. We next consider a...

We provide a model with overconfident risk neutral investors, and therefore no risk premia, in which a price-based portfolio such as HML earns positive expected returns and loads on fundamental macroeconomic variables. Furthermore, loadings on such portfolios are proxies for mispricing, and...

Following previous research which established that liquidity commonality exists within one stock market over a short period of time, this paper finds that liquidity commonality also exists globally. Utilising a large number of stock exchanges and a twelve year research time frame, this paper...

The most recent global financial crisis, characterized as a liquidity crunch, began in the U.S. in late 2007 and quickly spread to other countries. The rapid propagation of the liquidity shock and the severe effects of the crisis on stock market performance have raised several important...

We provide a synthesis of the empirical evidence on market liquidity. The liquidity measurement literature has established standard measures of liquidity that apply to broad categories of market microstructure data. Specialized measures of liquidity have been developed to deal with data...

We estimate buy- and sell-order illiquidity measures (lambdas) for a comprehensive sample of NYSE stocks. We show that sell-order liquidity is priced more strongly than buy-order liquidity in the cross-section of equity returns. Indeed, our analysis indicates that the liquidity premium in...

Little is known about the joint dynamics of volume across the various contingent claims on the equity market. We study the time-series of trading activity in the cash S&P 500 index and its derivatives (options, the legacy and E-mini futures contracts, and the ETF), and consider their dynamic...