We present a dynamic equilibrium model to understand differences and interactions between informational and trading speed advantages. The model is a stochastic asynchronous game, with endogenous trading decisions and non-cooperation among agents, in a limit order market. We show that welfare and...

In this paper we survey the theoretical and empirical literatures on market liquidity. We organize both literatures around three basic questions: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how...

This paper investigates whether markets for individual stocks lose liquidity when uninformed investors are given options to avoid trading against informed investors. I find a positive association between the percentage of firm shares being held by exchange-traded funds (ETFs) and illiquidity in...

This paper provides a model which helps explain the variability of stock liquidity premium. I model liquidity as a time-varying price impact and include both permanent as well as temporary price impact. Liquidity premium is defined as an additional return that stock should yield to compensate an...

We consider a large trader seeking to liquidate a portfolio using both a transparent trading venue and a dark pool. Our model captures the price impact of trading in transparent traditional venues as well as the execution uncertainty of trading in a dark pool. The unique optimal execution...

We cross-sectionally analyze the presence of aggregated hidden depth and trade volume in the S&P 500 and identify its key determinants. We find that the spread is the main predictor for a stock's hidden dimension, both in terms of traded and posted liquidity. Our findings moreover suggest that...

This paper investigates the scarcity effects of quantitative easing (QE) policies, drawing on intra-day transaction-level data for German government bonds, purchased under the Public Sector Purchase Program (PSPP) of the ECB/Eurosystem. This paper is the first to match high-frequency QE purchase...

We investigate the pricing of systematic liquidity risk in UK equities using a large sample of daily data. Employing four alternative measures of liquidity we first find strong evidence of commonality in liquidity across stocks. We apply asymptotic principal component analysis (PCA) on the...

We construct a model for liquidity risk and price impacts in a limit order book setting with depth, resilience and tightness. We derive a wealth equation and a characterization of illiquidity costs. We show that we can separate liquidity costs due to depth and resilience from those related to...

Using tick data covering a 12 year period including much of the recent financial crisis we provide an unprecedented examination of the relationship between liquidity and stock returns in the UK market. Previous research on liquidity using high frequency data omits the recent financial crisis and...