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Patterns in cross market liquidity

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  • Spiegel, Matthew

Abstract

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.

Suggested Citation

  • Spiegel, Matthew, 2008. "Patterns in cross market liquidity," Finance Research Letters, Elsevier, vol. 5(1), pages 2-10, March.
  • Handle: RePEc:eee:finlet:v:5:y:2008:i:1:p:2-10
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    References listed on IDEAS

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    1. Marco Pagano, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 255-274.
    2. Bhattacharya Utpal & Reny Philip J. & Spiegel Matthew, 1995. "Destructive Interference in an Imperfectly Competitive Multi-Security Market," Journal of Economic Theory, Elsevier, vol. 65(1), pages 136-170, February.
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    4. 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.
    5. 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.
    6. Alexander, Gordon J. & Edwards, Amy K. & Ferri, Michael G., 2000. "The determinants of trading volume of high-yield corporate bonds," Journal of Financial Markets, Elsevier, vol. 3(2), pages 177-204, May.
    7. Subrahmanyam, Avanidhar, 1991. "A Theory of Trading in Stock Index Futures," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 17-51.
    8. 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, February.
    9. David Goldreich & Bernd Hanke & Purnendu Nath, 2005. "The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market," Review of Finance, Springer, vol. 9(1), pages 1-32, March.
    10. David Goldreich & Bernd Hanke & Purnendu Nath, 2005. "The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market," Review of Finance, European Finance Association, vol. 9(1), pages 1-32.
    11. Amy K. Edwards & Lawrence E. Harris & Michael S. Piwowar, 2007. "Corporate Bond Market Transaction Costs and Transparency," Journal of Finance, American Finance Association, vol. 62(3), pages 1421-1451, June.
    12. Tarun Chordia, 2005. "An Empirical Analysis of Stock and Bond Market Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 85-129.
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    Cited by:

    1. Dungey, Mardi & Hvozdyk, Lyudmyla, 2012. "Cojumping: Evidence from the US Treasury bond and futures markets," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1563-1575.
    2. Dimitri Vayanos & Jiang Wang, 2012. "Market Liquidity - Theory and Empirical Evidence," FMG Discussion Papers dp709, Financial Markets Group.
    3. repec:kap:rqfnac:v:49:y:2017:i:3:d:10.1007_s11156-016-0609-6 is not listed on IDEAS
    4. repec:eee:finlet:v:21:y:2017:i:c:p:272-276 is not listed on IDEAS
    5. Dungey, Mardi & Hvozdyk, Lyudmyla, 2010. "Cojumping: Evidence from the US Treasury Bond and Future Markets (Discussion Paper 2010-06)," Working Papers 10450, University of Tasmania, Tasmanian School of Business and Economics, revised 14 Jul 2010.
    6. repec:wsi:rpbfmp:v:20:y:2017:i:02:n:s0219091517500084 is not listed on IDEAS
    7. Vayanos, Dimitri & Wang, Jiang, 2013. "Market Liquidity—Theory and Empirical Evidence ," Handbook of the Economics of Finance, Elsevier.
    8. Easley, David & O'Hara, Maureen, 2010. "Liquidity and valuation in an uncertain world," Journal of Financial Economics, Elsevier, vol. 97(1), pages 1-11, July.
    9. Sensoy, Ahmet, 2016. "Commonality in liquidity: Effects of monetary policy and macroeconomic announcements," Finance Research Letters, Elsevier, vol. 16(C), pages 125-131.
    10. Bond, Shaun A. & Chang, Qingqing, 2012. "Liquidity dynamics across public and private markets," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1890-1910.

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