Market Liquidity: Asset Pricing, Risk, and Crises - Hardcover

Amihud, Yakov; Mendelson, Haim; Pedersen, Lasse Heje

Hardcover

ISBN 10: 0521191769 ISBN 13: 9780521191760

Publisher: Cambridge University Press, 2012

Synopsis

This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large position. Liquidity risk is higher if a security becomes more illiquid when it needs to be traded in the future, which will raise trading cost. The book shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation. Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity services. When these become constrained, there is a liquidity crisis which leads to downward price and liquidity spiral. Overall, the volume demonstrates the important role of liquidity in asset pricing.

About this title

Book Description:

This book is about the pricing of liquidity in securities markets. The authors present theory and evidence on the positive effect of liquidity on asset prices, why liquidity varies over time, and how liquidity risk affects prices. The book then explains how liquidity crises create downward price and liquidity spirals. The analysis has implications for traders, risk managers, performance evaluation, economic policy, regulation of financial markets, management of liquidity crises, and academic research.

About the Author:

Yakov Amihud is the Ira Rennert Professor of Finance at the Stern School of Business, New York University. His published research focuses on the effects of the liquidity of stocks and bonds on their returns and values and the design and evaluation of securities markets' trading methods and systems. On these topics, Professor Amihud has advised the New York Stock Exchange, American Stock Exchange, Chicago Board of Options Exchange, Chicago Board of Trade and other securities markets. He has published more than ninety research articles in professional journals and in books and edited and co-edited five books on securities market design, international finance, leveraged buyouts and bank mergers and acquisitions.

About this edition

• Publisher: Cambridge University Press
• Publication date: 2012
• ISBN 10: 0521191769
• ISBN 13: 9780521191760
• Binding: Hardcover
• Number of pages: 292