The most recent global financial crisis, characterized as a liquidity crunch, began in the U.S. in late 2007 and … quickly spread to other countries. The rapid propagation of the liquidity shock and the severe effects of the crisis on stock … market performance have raised several important questions. Which channels contributed to the transmission of liquidity …

liquidity in dollars kept traders from arbitraging away excess profits. Risk factors, instead, are mostly insignificant …. Liquidity factors involve intermediaries cutting back loans to arbitrageurs in order to shrink their balance sheet, and hoarding … liquidity to cover their own funding strains. In addition, it seems that arbitrageurs themselves had insufficient pledge …