Patterns in cross market liquidity
Academic research on liquidity has generally focused on explaining what can be called within market liquidity. That is it seeks to explain things like why one stock is more liquid than another. But there has been considerably less attention to cross market liquidity: the issue of why some securities are more liquid than others. For example, stocks are apparently far more liquid than high yield bonds. Why? Why do some markets exist (orange juice for example) while others do not (potatoes for example)? This article lays out the current academic evidence regarding liquidity across assets and explains why current theories have trouble with one item or another. The challenge then is to produce an overarching theory that offers predictions that are closer to what the data seems to imply about cross market liquidity.
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References listed on IDEAS
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- Bhattacharya Utpal & Reny Philip J. & Spiegel Matthew, 1995.
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- Pagano, Marco, 1986. "Trading Volume and Asset Liquidity," CEPR Discussion Papers 142, C.E.P.R. Discussion Papers.
- Matthew Spiegel & Xiaotong Wang, 2005. "Cross-sectional Variation in Stock Returns: Liquidity and Idiosyncratic Risk," Yale School of Management Working Papers amz2540, Yale School of Management, revised 01 Mar 2006.
- Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
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- Long Chen & David A. Lesmond & Jason Wei, 2007. "Corporate Yield Spreads and Bond Liquidity," Journal of Finance, American Finance Association, vol. 62(1), pages 119-149, 02.
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