IDEAS home Printed from https://ideas.repec.org/a/now/fntfin/0500000014.html
   My bibliography  Save this article

Theories of Liquidity

Author

Listed:
  • Vayanos, Dimitri
  • Wang, Jiang

Abstract

We survey the theoretical literature on market liquidity. The literature traces illiquidity, i.e., the lack of liquidity, to underlying market imperfections. We consider six main imperfections: participation costs, transaction costs, asymmetric information, imperfect competition, funding constraints, and search. We address three questions in the context of each imperfection: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how illiquidity affects expected asset returns. We nest all six imperfections within a common, unified model, and use that model to organize the literature.

Suggested Citation

  • Vayanos, Dimitri & Wang, Jiang, 2012. "Theories of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 6(4), pages 221-317, November.
    • Handle: RePEc:now:fntfin:0500000014
    DOI: 10.1561/0500000014
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1561/0500000014
    Download Restriction: no
    File URL: https://libkey.io/10.1561/0500000014?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Banerjee, Snehal & Graveline, Jeremy J., 2014. "Trading in derivatives when the underlying is scarce," Journal of Financial Economics, Elsevier, vol. 111(3), pages 589-608.
    2. Guillermo Llorente & Jiang Wang, 2020. "Trading and information in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(8), pages 1231-1263, August.
    3. Gilles Hilary & Laura Xiaolei Liu, 2021. "Blockchain and Other Distributed Ledger Technologies in Finance," Springer Books, in: Raghavendra Rau & Robert Wardrop & Luigi Zingales (ed.), The Palgrave Handbook of Technological Finance, pages 243-268, Springer.
    4. Loïc Sauce, 2022. "The unintended consequences of the regulation of cryptocurrencies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(1), pages 57-71.
    5. Stefan Arping, 2015. "Banks and Market Liquidity," Tinbergen Institute Discussion Papers 15-020/IV, Tinbergen Institute.

    More about this item

    Keywords

    Liquidity; Market imperfections; Asymmetric information; Market microstructure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G - Financial Economics
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:now:fntfin:0500000014. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucy Wiseman (email available below). General contact details of provider: http://www.nowpublishers.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.