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- Article
Liquidity Provision and Stock Return Predictability
By: Mark Seasholes and Terrence Hendershott
This paper examines the trading behavior of two groups of liquidity providers (specialists and competing market makers) using a six-year panel of NYSE data. Trades of each group are negatively correlated with contemporaneous price changes. To test for return... View Details
Keywords: Liquidity; Market Makers; Market Efficiency; Inventory; Liquidity Provision; Market Design; Financial Liquidity; Stocks; Investment Return
Seasholes, Mark, and Terrence Hendershott. "Liquidity Provision and Stock Return Predictability." Journal of Banking & Finance 45 (August 2014): 140–151.
- 2008
- Working Paper
Liquidity Needs in Economies with Interconnected Financial Obligations
By: Julio J. Rotemberg
A model is developed where firms in a financial system have to settle their debts to each other by using a liquid asset. The question that is studied is how many firms must obtain how much of this asset from outside the financial system to make sure that all debts... View Details
Rotemberg, Julio J. "Liquidity Needs in Economies with Interconnected Financial Obligations." NBER Working Paper Series, No. 14222, August 2008.
- 2013
- Working Paper
Improving Store Liquidation
By: Nathan Craig and Ananth Raman
Store liquidation is the time-constrained divestment of retail outlets through an in-store sale of inventory. The retail industry depends extensively on store liquidation, not only as a means for investors to recover capital from failed ventures, but also to allow... View Details
Craig, Nathan, and Ananth Raman. "Improving Store Liquidation." Harvard Business School Working Paper, No. 13-096, May 2013.
- February 2018
- Article
Financial Disclosure and Market Transparency with Costly Information Processing
By: Marco Di Maggio and Marco Pagano
We study a model where some investors (“hedgers”) are bad at information processing, while others (“speculators”) have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if... View Details
Keywords: Financial Disclosure; Information Processing; Liquidity; Market Transparency; Rational Inattention; Information; Financial Liquidity; Knowledge Use and Leverage; Corporate Disclosure; Financial Markets; Investment
Di Maggio, Marco, and Marco Pagano. "Financial Disclosure and Market Transparency with Costly Information Processing." Review of Finance 22, no. 1 (February 2018): 117–153.
- June 2004
- Article
Market Liquidity as a Sentiment Indicator
By: Malcolm Baker and Jeremy Stein
We build a model that helps to explain why increases in liquidity-such as lower bid-ask spreads, a lower price impact of trade, or higher turnover-predict lower subsequent returns in both firm-level and aggregate data. The model features a class of irrational... View Details
Keywords: Markets; Financial Liquidity; Price; Trade; Sales; Equity; Information; Management Analysis, Tools, and Techniques; Accounting Industry
Baker, Malcolm, and Jeremy Stein. "Market Liquidity as a Sentiment Indicator." Journal of Financial Markets 7, no. 3 (June 2004): 271–299.
- December 1979
- Article
Liquidity Preference under Uncertainty
By: Carliss Y. Baldwin and Richard F. Meyer
Baldwin, Carliss Y., and Richard F. Meyer. "Liquidity Preference under Uncertainty." Journal of Financial Economics 7, no. 4 (December 1979).
- 10 Apr 2020
- News
Managing the Liquidity Crisis
- 2005
- Working Paper
Aggregate Corporate Liquidity and Stock Returns
By: Robin Greenwood
Aggregate investment in cash and liquid assets as a share of total corporate investment is negatively related to subsequent U.S. stock market returns between 1947 and 2003. The share of cash in total investment is a more stable predictor of returns than scaled price... View Details
- October 2011 (Revised December 2011)
- Case
Vignette: Alternative Liquidity Options
By: Felda Hardymon, Josh Lerner and Ann Leamon
The growth of companies that facilitate the sales of unregistered stock, such as that granted to employees of successful but long-private companies, has raised a number of questions among regulators, investors, and company founders. This brief vignette sketches out... View Details
Hardymon, Felda, Josh Lerner, and Ann Leamon. "Vignette: Alternative Liquidity Options." Harvard Business School Case 812-070, October 2011. (Revised December 2011.)
- 29 Jun 2020
- Working Paper Summaries
Measuring the Perceived Liquidity of the Corporate Bond Market
- July 2012
- Case
New Century Financial Corporation (Abridged)
By: Krishna G. Palepu, Suraj Srinivasan and Ian Cornell
After years of rapid growth and stock price appreciation, New Century Financial Corporation, one of the largest subprime loan originators in the U.S., reported accounting problems in early 2007. The resulting liquidity crisis forced the company to file for Chapter 11... View Details
Keywords: Audit Committees; Financial Management; Control Systems; Securities; Loan Evaluation; Accounting; Value; Financial Services Industry; United States
Palepu, Krishna G., Suraj Srinivasan, and Ian Cornell. "New Century Financial Corporation (Abridged)." Harvard Business School Case 113-002, July 2012.
- Working Paper
Measuring the Perceived Liquidity of the Corporate Bond Market
By: Sergey Chernenko and Adi Sunderam
We propose a novel measure of bond market liquidity that does not depend on transaction data: the strength of the cross-sectional relationship between mutual fund cash holdings and fund flow volatility. Our measure captures how liquid funds perceive their portfolio... View Details
Chernenko, Sergey, and Adi Sunderam. "Measuring the Perceived Liquidity of the Corporate Bond Market." NBER Working Paper Series, No. 27092, May 2020.
- Article
Liquidity in Retirement Savings Systems: An International Comparison
By: John Beshears, James J. Choi, Joshua Hurwitz, David Laibson and Brigitte C. Madrian
We compare the liquidity that six developed countries have built into their employer-based defined contribution (DC) retirement schemes. In Germany, Singapore, and the UK, withdrawals are essentially banned no matter what kind of transitory income shock the household... View Details
Keywords: Saving; Financial Liquidity; Retirement; Canada; Germany; Australia; United Kingdom; United States; Singapore
Beshears, John, James J. Choi, Joshua Hurwitz, David Laibson, and Brigitte C. Madrian. "Liquidity in Retirement Savings Systems: An International Comparison." American Economic Review: Papers and Proceedings 105, no. 5 (May 2015): 420–425.
- 2002
- Other Unpublished Work
Market Liquidity as a Sentiment Indicator
By: Malcolm Baker and Jeremy Stein
We build a model that helps to explain why increases in liquidity—such as lower bid–ask spreads, a lower price impact of trade, or higher turnover—predict lower subsequent returns in both firm-level and aggregate data. The model features a class of irrational... View Details
Keywords: Price; Financial Liquidity; Trade; Valuation; Markets; Forecasting and Prediction; Equity; Stock Shares; Investment Return
Baker, Malcolm, and Jeremy Stein. "Market Liquidity as a Sentiment Indicator." NBER Working Paper Series, 2002. (First draft in 2001.)
- September 2011 (Revised July 2012)
- Case
Khosla Ventures: Biofuels Gain Liquidity
By: Joseph B. Lassiter III, William A. Sahlman, Alison Berkley Wagonfeld and Evan Richardson
Samir Kaul, a Partner at Khosla Ventures, looked out his office window. It was late June, 2011, and like almost every day in Menlo Park, the sun was shining. Kaul was reflecting on what had been a very positive 10 months in the venture capital business. Over that span,... View Details
Keywords: Venture Capital; Financial Strategy; Business or Company Management; Partners and Partnerships; Product Development; Investment Portfolio; Financial Services Industry
Lassiter, Joseph B., III, William A. Sahlman, Alison Berkley Wagonfeld, and Evan Richardson. "Khosla Ventures: Biofuels Gain Liquidity." Harvard Business School Case 812-035, September 2011. (Revised July 2012.)
- 15 Aug 2016
- Working Paper Summaries
Liquidity Transformation in Asset Management: Evidence from the Cash Holdings of Mutual Funds
- 2013
- Working Paper
Return Predictability in the Treasury Market: Real Rates, Inflation, and Liquidity
By: Carolin E. Pflueger and Luis M. Viceira
Estimating the liquidity differential between inflation-indexed and nominal bond yields, we separately test for time-varying real rate risk premia, inflation risk premia, and liquidity premia in U.S. and U.K. bond markets. We find strong, model independent evidence... View Details
Keywords: Expectations Hypothesis; Term Structure; Real Interest Rate Risk; Inflation Risk; Inflation-Indexed Bonds; Financial Crisis; Inflation and Deflation; Financial Liquidity; Bonds; Investment Return; Risk and Uncertainty; United Kingdom; United States
Pflueger, Carolin E., and Luis M. Viceira. "Return Predictability in the Treasury Market: Real Rates, Inflation, and Liquidity." Harvard Business School Working Paper, No. 11-094, March 2011. (Revised September 2013.)
- spring 1989
- Article
The Changing Character of Stock Market Liquidity
By: André Perold and James F. Gammill
Perold, André, and James F. Gammill. "The Changing Character of Stock Market Liquidity." Journal of Portfolio Management (spring 1989): 13–18.
- July 2019
- Article
Optimal Capital Structure and Bankruptcy Choice: Dynamic Bargaining vs Liquidation
By: Samuel Antill and Steven R. Grenadier
We model a firm’s optimal capital structure decision in a framework in which it may later choose to enter either Chapter 11 reorganization or Chapter 7 liquidation. Creditors anticipate equityholders’ ex-post reorganization incentives and price them into the ex-ante... View Details
Keywords: Default; Dynamic Bargaining; Capital Structure; Insolvency and Bankruptcy; Mathematical Methods
Antill, Samuel, and Steven R. Grenadier. "Optimal Capital Structure and Bankruptcy Choice: Dynamic Bargaining vs Liquidation." Journal of Financial Economics 133, no. 1 (July 2019): 198–224.
- 2016
- Working Paper
Liquidity Transformation in Asset Management: Evidence from the Cash Holdings of Mutual Funds
By: Sergey Chernenko and Adi Sunderam
We study liquidity transformation in mutual funds using a novel dataset on their cash holdings. To provide investors with claims that are more liquid than the underlying assets, funds engage in substantial liquidity management. Specifically, they hold substantial... View Details
Chernenko, Sergey, and Adi Sunderam. "Liquidity Transformation in Asset Management: Evidence from the Cash Holdings of Mutual Funds." Harvard Business School Project on Behavioral Finance and Financial Stability Working Paper, No. 2016-01, July 2016. (NBER Working Paper Series, No. 22391, July 2016.)