This working paper surveys theoretical and empirical work about market liquidity and market liquidity risk. It addresses interested practitioners as well as students who want to gain a quick overview about the latest progress in research in market liquidity.

The paper analyzes a very stylized model of crises and demonstrates how the degree of strategic complementarity in the actions of investors is a critical determinant of fragility. It is shown how the balance sheet composition of a financial intermediary, parameters of the information structure...