In this paper we survey the theoretical and empirical literatures on market liquidity. We organize both literatures around three basic questions: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how...

Many empirical studies suggest that correlated demand is important in driving liquidity commonality among stocks. However, there are still no theoretical studies on how demandside factors cause and affect liquidity and return commonality. We propose a tractable equilibrium model with asymmetric...

This paper studies the choice between building liquidity buffers and raising funding ex post, to deal with liquidity shocks. We uncover the possibility of an inefficient liquidity squeeze equilibrium. Agents typically choose to build smaller liquidity buffers when they expect cheap funding....

In the global games framework, this paper studies bank runs in a financial system, in which there are many banks and they share a common asset market. Our model 1) endogenizes market liquidity, 2) demonstrates two-way feedback between market liquidity and creditor runs, and 3) shows the...

This paper proposes a framework to analyze the functioning of the inter-bank liquidity market and the occurrence of liquidity crises. The model relies on three key assumptions: (i) liquidity provisioning is not verifiable -it cannot be contracted upon-, (ii) banks face moral hazard when...

The second Markets in Financial Instruments Directive (MiFID II) mandated the unbundling of payments for research and trading. This research explores whether the impact of MiFID II differs between large and small firms in terms of analyst coverage and stock liquidity. In particular, we focus on...

We model asset issuance in over-the-counter markets. Investors buy newly issued assets in a primary market and trade existing assets in a secondary market, where both markets are over the counter. We show that the level of asset issuance and its efficiency depend on how investors split the...

We study price pressures in stock prices-price deviations from fundamental value due to a risk-averse intermediary supplying liquidity to asynchronously arriving investors. Empirically, twelve years of daily New York Stock Exchange intermediary data reveal economically large price pressures. A...

We develop a dynamic model of liquidity provision, in which hedgers can trade multiple risky assets with arbitrageurs. We compute the equilibrium in closed form when arbitrageurs' utility over consumption is logarithmic or risk-neutral with a non-negativity constraint. Liquidity is increasing in...

We study price pressures in stock prices-price deviations from fundamental value due to a risk-averse intermediary supplying liquidity to asynchronously arriving investors. Empirically, twelve years of daily New York Stock Exchange intermediary data reveal economically large price pressures. A...