Liquidity and Market Structure / Sanford J. Grossman, Merton H. Miller.

Format:

Book

Author/Creator:

Grossman, Sanford J.

Contributor:

National Bureau of Economic Research.

Miller, Merton H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2641.

NBER working paper series no. w2641

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1988.

Summary:

Market liquidity is modeled as being determined by the demand and supply of immediacy. Exogenous liquidity events coupled with the risk of delayed trade create a demand for immediacy. Market makers supply immediacy by their continuous presence. and willingness to bear risk during the time period between the arrival of final buyers and sellers. In the long run the number of market makers adjusts to equate the supply and demand for immediacy. This determine the equilibrium level of liquidity in the market. The lower is the autocorrelation in rates of return, the higher is the equilibrium level of liquidity.

Notes:

Print version record

July 1988.