European University Institute Library

Theories of liquidity, Dimitri Vayanos, Jiang Wang

eng

Includes bibliographical references (pages 87-101)

no index present

non fiction

Theories of liquidity

815735369

Dimitri Vayanos, Jiang Wang

Foundations and trends in finance, v. 6:4

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.--, Provided by publisher

1. Introduction -- 2. Model -- 3. Perfect-market benchmark -- 3.1 Equilibrium -- 3.2 Illiquidity and its effect on price -- 4. Participation costs -- 4.1 Equilibrium -- 4.2 Participation costs and illiquidity -- 4.3 Literature -- 5. Transaction costs -- 5.1 Equilibrium -- 5.2 Transaction costs and illiquidity -- 5.3 Literature -- 6. Asymmetric information -- 6.1 Equilibrium -- 6.2 Asymmetric information and illiquidity -- 6.3 Literature -- 7. Imperfect competition -- 7.1 Equilibrium -- 7.2 Imperfect competition and illiquidity -- 7.3 Literature -- 8. Funding constraints -- 8.1 Equilibrium -- 8.2 Funding constraints and illiquidity -- 8.3 Literature -- 9. Search -- 9.1 Equilibrium -- 9.2 Search and illiquidity -- 9.3 Literature -- 10. Conclusion -- Acknowledgments -- References