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...

Feedback from stock prices to cash flows occurs because information revealed by firms' stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting with incumbent publicly traded firms and privately held new entrants. In...

We analyze the relation between expected equity returns and the level as well as the volatility of trading activity. We document a negative cross-sectional relationship between stock returns and the variability of dollar trading volume and share turnover, after controlling for size,...

Deviations from no-arbitrage relations should be related to frictions associated with transacting; in particular to market illiquidity, because frictions impede arbitrage. Thus, financial market liquidity may play a key role in moving prices to fair values. At the same time, a wide futures/cash...

This paper studies the relation between order imbalances and daily returns of individual stocks. Our tests are motivated by a theoretical framework, whose distinguishing feature is that it explicitly considers how market makers with inventory concerns dynamically accommodate autocorrelated...

Spreads, depths and trading activity for US equities are studied over an extended time sample. Daily changes in market averages of liquidity and trading activity are highly volatile, negatively serially correlated and influenced by a variety of factors. Liquidity plummets significantly in down...

We propose a theory based on investor overconfidence and biased self-attribution to explain several of the securities returns patterns that seem anomalous from the perspective of efficient markets with rational investors. The theory is based on two premises derived from evidence in psychological...

Given the evidence that the level of liquidity affects asset returns, a reasonable hypothesis is that the second moment of liquidity should be positively related to asset returns, provided agents care about the risk associated with fluctuations in liquidity. Motivated by this observation, we...