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Market liquidity risk: an overview

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  • Stange, Sebastian
  • Kaserer, Christoph

Abstract

Market liquidity is the ease of trading an asset. Its risk is the potential loss, because a security can only be traded at high or prohibitive costs. While the omnipresence and importance of market liquidity is widely acknowledged, it has long remained a more or less elusive concept. Treatment of liquidity risk is still under development. This paper provides an overview on important aspects of market liquidity and its risk. We also survey existing models to integrate market liquidity risk into risk frameworks. We place special emphasis on practical usability and discuss relevant strengths, weaknesses and their implications. --

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Bibliographic Info

Paper provided by Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München in its series CEFS Working Paper Series with number 2009-04.

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Date of creation: 2009
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Handle: RePEc:zbw:cefswp:200904

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Related research

Keywords: asset liquidity; liquidity cost; price impact; Xetra liquidity measure (XLM); risk measurement; Value-at-Risk; market liquidity risk; overview;

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