Seminar
Crashes and recoveries in illiquid markets
Pierre-Olivier Weill (UCLA)
Paul Woolley Research Initiative Seminar
IDEI, September 10, 2007
Reference
Pierre-Olivier Weill (UCLA), “Crashes and recoveries in illiquid markets”, Paul Woolley Research Initiative Seminar, IDEI, September 10, 2007.
Abstract
We study the dynamics of liquidity provision by dealers during an asset market crash, described as a temporary negative shock to investors aggregate asset demand. We consider a class of dynamic market settings where dealers can trade continuously with each other, whiletrading between dealers and investors is subject to delays and involves bargaining. We derive conditions on fundamentals, such as preferences, market structure and the characteristics of the market crash (e.g., severity, persistence) under which dealers provide liquidity to investors following the crash. We also characterize the conditions under which dealers incentives to provide liquidity are consistent with market efficiency.
Research partnership
Paul Woolley Research Initiative