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An Operational Measure of Liquidity

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Author Info
Lippman, Steven A
McCall, John J
Abstract

Embedding the process of selling an asset in a search environment enables one to provide an exact definition of liquidity: an asset's liquidity is the expected time until it is sold while pursuing an optimal (in the sense of maximization of expected discounted net proceeds) policy. This analysis reveals that this definition is compatible with most other notions of liquidity and, in particular, with those of John Maynard Keynes, impatience, the discount associatedwith a quick sale, predictability, and flexibility. Copyright 1986 by American Economic Association.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 76 (1986)
Issue (Month): 1 (March)
Pages: 43-55
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Handle: RePEc:aea:aecrev:v:76:y:1986:i:1:p:43-55

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  2. Stefano Benati & M. Tavernini, 1998. "A new lagrangean heuristic for the generalized assignment problem," Quaderni DISA 014, Department of Computer and Management Sciences, University of Trento, Italy.
  3. Venkat Eleswarapu & Chandrasekar Krishnamurti, 1995. "Liquidity, stock returns and ownership structure: an empirical study of the BSE," Finance 9507005, EconWPA. [Downloadable!]
  4. Paul Bennett & Kenneth Barbade & John Kambhu, 2000. "Enhancing the liquidity of U.S. Treasury securities in an era of surpluses," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 89-119. [Downloadable!]
  5. Felipe Zurita, 2008. "Liquidity and market incompleteness," Annals of Finance, Springer, vol. 4(3), pages 299-303, July. [Downloadable!] (restricted)
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  6. John Krainer, 1999. "Real estate liquidity," Economic Review, Federal Reserve Bank of San Francisco, pages 14-26. [Downloadable!]
  7. Bossone, Biagio, 1999. "Financial development and industrial capital accumulation," Policy Research Working Paper Series 2201, The World Bank. [Downloadable!]
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  10. Francis A. Longstaff, 2004. "Financial Claustrophobia: Asset Pricing in Illiquid Markets," NBER Working Papers 10411, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Junjian Miao, . "A search model of centralized and decentralized trade," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2005-012, Boston University - Department of Economics, revised Oct 2005. [Downloadable!]
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  12. Li Gan & Qi Li, 2004. "Efficiency of Thin and Thick Markets," NBER Working Papers 10815, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Paul Bennett & Kenneth Garbade & John Kambhu, 1999. "Enhancing the Liquidity of U.S. Treasury Securities in an Era of Surpluses," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-083, New York University, Leonard N. Stern School of Business-. [Downloadable!]
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  15. Francis Longstaff, 2001. "The Flight-to-Liquidity Premium in U.S. Treasury Bond Prices," University of California at Los Angeles, Anderson Graduate School of Management 1004, Anderson Graduate School of Management, UCLA. [Downloadable!]
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  17. Matos, Joao Amaro de & Antao, Paula, 2000. "Market Illiquidity and the Bid-Ask Spread of Derivatives," FEUNL Working Paper Series wp386, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
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  19. Francis A. Longstaff, 2002. "The Flight-to-Liquidity Premium in U.S. Treasury Bond Prices," NBER Working Papers 9312, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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