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Trading Costs, Liquidity, and Asset Holdings

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  • Bhushan, Ravi

Abstract

In this article I develop a model that accounts for interdependence between trading costs in various asset markets arising from the optimizing behavior of liquidity traders. The model suggests that noise trading is an important determinant of the liquidity of asset markets and provides a positive theory for diversified asset holding by risk-neutral liquidity traders. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Bhushan, Ravi, 1991. "Trading Costs, Liquidity, and Asset Holdings," The Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 343-360.
    • Handle: RePEc:oup:rfinst:v:4:y:1991:i:2:p:343-60
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    Cited by:

    1. Alan D. Morrison, 2004. "Competition and Information Production in Market Maker Models," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7-8), pages 1171-1190.
    2. Borja Amor-Tapia & Maria T. Tascon, 2016. "Separating Winners from Losers: Composite Indicators Based on Fundamentals in the European Context," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 70-94, February.
    3. Yavas, Abdullah, 2001. "The immediacy service of the specialist as a coordination mechanism," International Review of Economics & Finance, Elsevier, vol. 10(3), pages 205-221, July.
    4. Sebastian Dickgiesser & Christoph Kaserer, 2010. "Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information," German Economic Review, Verein für Socialpolitik, vol. 11(3), pages 302-335, August.
    5. Bailey, Warren & Andrew Karolyi, G. & Salva, Carolina, 2006. "The economic consequences of increased disclosure: Evidence from international cross-listings," Journal of Financial Economics, Elsevier, vol. 81(1), pages 175-213, July.
    6. Grammig, Joachim & Schiereck, Dirk & Theissen, Erik, 2001. "Knowing me, knowing you: : Trader anonymity and informed trading in parallel markets," Journal of Financial Markets, Elsevier, vol. 4(4), pages 385-412, October.
    7. Hargis, Kent & Ramanlal, Pradipkumar, 1998. "When Does Internationalization Enhance the Development of Domestic Stock Markets?," Journal of Financial Intermediation, Elsevier, vol. 7(3), pages 263-292, July.
    8. Alan D. Morrison, 2004. "Competition and Information Production in Market Maker Models," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7‐8), pages 1171-1190, September.
    9. Chan, Kalok & Hameed, Allaudeen & Kang, Wenjin, 2013. "Stock price synchronicity and liquidity," Journal of Financial Markets, Elsevier, vol. 16(3), pages 414-438.
    10. Instefjord, Norvald, 2006. "Forecasting risk, informed speculation, and financial innovation," Journal of Financial Intermediation, Elsevier, vol. 15(1), pages 67-85, January.
    11. Lamoureux, Christopher G. & Schnitzlein, Charles R., 2004. "Microstructure with multiple assets: an experimental investigation into direct and indirect dealer competition," Journal of Financial Markets, Elsevier, vol. 7(2), pages 117-143, February.
    12. Bühler, Wolfgang & Kempf, Alexander, 1994. "The value of the early unwind option in futures contracts with an endogenous basis," ZEW Discussion Papers 94-06, ZEW - Leibniz Centre for European Economic Research.

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