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on Market Microstructure |
| By: | Markus K. Brunnermeier; Lasse Heje Pedersen |
| Abstract: | We provide a model that links an asset's market liquidity - i.e., the ease with which it is traded - and traders' funding liquidity - i.e., the ease with which they can obtain funding. Traders provide market liquidity, and their ability to do so depends on their availability of funding. Conversely, traders' funding, i.e., their capital and the margins they are charged, depend on the assets' market liquidity. We show that, under certain conditions, margins are destabilizing and market liquidity and funding liquidity are mutually reinforcing, leading to liquidity spirals. The model explains the empirically documented features that market liquidity (i) can suddenly dry up, (ii) has commonality across securities, (iii) is related to volatility, (iv) is subject to "flight to quality", and (v) comoves with the market, and it provides new testable predictions. |
| JEL: | G12 G21 G24 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12939&r=mst |
| By: | Silja Kinnebrock; Mark Podolskij |
| Abstract: | In this paper we present the central limit theorem for general functions of the increments of Brownian semimartingales. This provides a natural extension of the results derived in Barndorff-Nielsen, Graversen, Jacod, Podolskij & Shephard (2006), who showed the central limit theorem for even functions. We prove an infeasible central limit theorem for general functions and state some assumptions under which a feasible version of our results can be obtained. Finally, we present some examples from the literature to which our theory can be applied. |
| Keywords: | Bipower Variation; Central Limit Theorem; Diffusion Models; High-Frequency Data; Semimartingale Theory |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2007fe03&r=mst |