Liquidity and risk management
By: Nicolae B. Garleanu, Lasse H. Pedersen.
Contributors: Garleanu, Nicolae B.; Pedersen, Lasse H.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 12887; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12887.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "This paper provides a model of the interaction between risk-management practices and market liquidity.  On one hand, tighter risk management reduces the maximum position an institution can take, thus the amount of liquidity it can offer to the market.  On the other hand, risk managers can take into account that lower liquidity amplifies the effective risk of a position by lengthening the time it takes to sell it.  The main result of the paper is that a feedback effect can arise: tighter risk management reduces liquidity, which in turn leads to tighter risk management, etc.  This can help explain sudden drops in liquidity and, since liquidity is priced, in prices in connection with increased volatility or decreased risk-bearing capacity"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 5/11/2007.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.