We provide a comprehensive study of the liquidity of spot foreign exchange (FX) rates over more than two decades and a … large cross-section of currencies. First, we show that FX liquidity can be accurately measured with daily and readily …-available data. Second, we demonstrate that FX liquidity declines with funding constraints and global risk, supporting theoretical …

contemporaneously explain and predict carry trade returns but only when currency market liquidity is low. Our findings are consistent … traders to unwind their positions, thereby exacerbating the downward price pressure during liquidity dry-outs. This sheds new …

market spreads. Thus, comovement in liquidity is even more pervasive than previously documented. Second, we explore the … liquidity remains strong. This result suggests that correlated adverse selection effects across currencies and across currencies … and stocks are an important driver of liquidity comovement, and is consistent with a recent literature on aggregate …

, consistent with theoretical models in which binding capital constraints lead to liquidity dry-ups, an overnight decline in the …. Moreover, I show that market liquidity of volatile stocks further deteriorates following an overnight market decline, which …