Thin equity markets cannot accommodate temporary bulges of buy or sell orders without large price movements: the resulting volatility can induce risk-averse transactors who face transaction costs to desert these markets altogether. Thus thinness and the consequent price volatility may become...

The excess sensitivity of consumption to current income fluctuations is higher in countries where consumers borrow less. Low levels of consumer debt can result either from capital market imperfections or from a low demand for loans. The evidence suggests that the former view is more appropriate...

We study a model where some investors ("hedgers") are bad at information processing, while others ("speculators") have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading,...

This paper distils three lessons for bank regulation from the experience of the 2009-12 euro-area financial crisis. First, it highlights the key role that sovereign debt exposures of banks have played in the feedback loop between bank and fiscal distress, and inquires how the regulation of...

Cover -- Contents -- Preface -- Introduction -- 0.1 What is This Book About? -- 0.2 Why Should We Care? -- 0.3 Some Puzzles -- 0.4 The Three Dimensions of Liquidity -- 0.4.1 Market Liquidity -- 0.4.2 Funding Liquidity -- 0.4.3 Monetary Liquidity -- PART ONE: Institutions -- 1 Trading Mechanics...