The Empirical Analysis of Liquidity

by Craig Holden, Stacey Jacobsen, Avanidhar Subrahmanyam

The Empirical Analysis of Liquidity starts with an overview of how liquidity is measured and specialized issues in liquidity measurement. Next, it examines what is known about cross-sectional and time-series patterns in liquidity. The authors then review how liquidity relates to the corporate finance literature, including governance, executive compensation, capital structure, and payout policy. They also review how liquidity influences the asset pricing literature, including return differentials due to average liquidity cost, liquidity premia for systematic liquidity risks, the impact of liquidity on market efficiency, and the impact of liquidity on the law of one price. Finally, some open questions and opportunities for future research are discussed. The Empirical Analysis of Liquidity is organized as follows. Section 2 considers the approaches taken to measure liquidity. Section 3 considers cross-sectional and time-series patterns in liquidity, commonality it liquidity, the impact of exchange design, the impact of exogenous policy shifts on liquidity, and the impact of high-frequency traders. Section 4 analyzes the relation between liquidity and corporate financial decisions. Section 5 explores the impact of liquidity on asset pricing, and Section 6 concludes with directions for future research.

116 pages, Paperback

Published December 18, 2014

About the author

Craig Holden is the author of the novels The River Sorrow, The Last Sanctuary, Four Corners of Night, The Jazz Bird, The Narcissist's Daughter, and the forthcoming Matala. He is a recipient of the Great Lakes Book Award in Fiction, and was a featured guest at the Festival International du Roman Noir in Frontignan, France. His books have been translated into a dozen languages. He has taught at the Universities of Michigan and Toledo, and is currently the visiting writer at New Mexico State University in Las Cruces, where he, his wife, four kids and two dogs, have settled at the edge of the high desert.