Learning from Prices, Liquidity Spillovers, and Market Segmentation
We describe a new mechanism that explains the transmission of liquidity shocks from one security to another ("liquidity spillovers"). Dealers use prices of other securities as a source of information. As prices of less liquid securities convey less precise information, a drop in liquidity for one security raises the uncertainty for dealers in other securities, thereby affecting their liquidity. The direction of liquidity spillovers is positive if the fraction of dealers with price information on other securities is high enough. Otherwise liquidity spillovers can be negative. For some parameters, the value of price information increases with the number of dealers obtaining this information. In this case, related securities can appear segmented, even if the cost of price information is small.
|Date of creation:||Apr 2011|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vives, Xavier, 1995.
"Short-Term Investment and the Informational Efficiency of the Market,"
Review of Financial Studies,
Society for Financial Studies, vol. 8(1), pages 125-160.
- Xavier Vives, 1994. "Short-term Investment and the Informational Efficiency of the Market," CEPR Financial Markets Paper 0034, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
- Vives, X., 1993. "Short-Term Investment and the Informational Efficiency of the Market," UFAE and IAE Working Papers 207.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Thierry Foucault & Giovanni Cespa, 2011.
"Insiders-Outsiders, Transparency and the Value of the Ticker,"
- Cespa, Giovanni & Foucault, Thierry, 2008. "Insiders-Outsiders, Transparency and the Value of the Ticker," CEPR Discussion Papers 6794, C.E.P.R. Discussion Papers.
- Foucault, Thierry & Cespa, Giovanni, 2008. "Insiders-outsiders, transparency and the value of the ticker," Les Cahiers de Recherche 892, HEC Paris.
- Cespa, Giovanni & Foucault, Thierry, 2008. "Insiders-outsiders, transparency and the value of the ticker," CFS Working Paper Series 2008/39, Center for Financial Studies (CFS).
- Giovanni Cespa & Thierry Foucault, 2008. "Insiders-Outsiders, Transparency and the Value of the Ticker," Working Papers 628, Queen Mary University of London, School of Economics and Finance.
- Gadi Barlevy & Pietro Veronesi, "undated".
"Information Acquisition in Financial Markets,"
CRSP working papers
484, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Alex Boulatov & Terrence Hendershott & Dmitry Livdan, 2013. "Informed Trading and Portfolio Returns," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 35-72.
- Giovanni Cespa, 2004.
"A Comparison of Stock Market Mechanisms,"
RAND Journal of Economics,
The RAND Corporation, vol. 35(4), pages 803-824, Winter.
- Jayant Vivek Ganguli & Liyan Yang, 2009. "Complementarities, Multiplicity, and Supply Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 90-115, 03.
- Caballe, Jordi & Krishnan, Murugappa, 1994. "Imperfect Competition in a Multi-security Market with Risk Neutrality," Econometrica, Econometric Society, vol. 62(3), pages 695-704, May.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:8350. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.