Stock Market Declines and Liquidity
Year: 2010
Type: article
Abstract: ABSTRACT Consistent with recent theoretical models where binding capital constraints lead to sudden liquidity dry‐ups, we find that negative market returns decrease stock liquidity, especially during times of tightness in the funding market. The asymmetric effect of changes in aggregate asset values on liquidity and commonality in liquidity cannot be fully explained by changes in demand for liquidity or volatility effects. We document interindustry spillover effects in liquidity, which are likely to arise from capital constraints in the market making sector. We also find economically significant returns to supplying liquidity following periods of large drops in market valuations.
Source: The Journal of Finance
Authors: ALLAUDEEN HAMEED, WENJIN KANG, S. VISWANATHAN
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121729798