Market liquidity, asset prices and welfare
By: Jennifer Huang, Jiang Wang.
Contributors: Wang, Jiang, 1959-; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 14058; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 14058.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "This paper presents an equilibrium model for the demand and supply of liquidity and its impact on asset prices and welfare.  We show that when constant market presence is costly, purely idiosyncratic shocks lead to endogenous demand of liquidity and large price deviations from fundamentals.  Moreover, market forces fail to lead to efficient supply of liquidity, which calls for potential policy interventions.  However, we demonstrate that different policy tools can yield different efficiency consequences.  For example, lowering the cost of supplying liquidity on the spot (e.g., through direct injection of liquidity or relaxation of ex post margin constraints) can decrease welfare while forcing more liquidity supply (e.g., through coordination of market participants) can improve welfare"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/11/2008.

Includes bibliographical references.

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