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Market Liquidity
Report

Market Liquidity

A Primer

Douglas J. Elliott
Brookings Institution, 2015
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Editorial Rating

9

Qualities

  • Analytical
  • Innovative
  • Overview

Recommendation

A number of signs indicate that market liquidity has fallen since the 2007–2009 financial crisis. If liquidity diminishes, investors may see lower returns, greater volatility and possibly a return to crisis. While the reasons for the decline remain uncertain, regulatory changes designed to protect investors may be a contributing factor. In clear, concise language, finance expert Douglas J. Elliot explains what market liquidity is, why it’s critical to the economy, and what market participants and regulators can do to ensure liquid and well-functioning markets. getAbstract recommends this instructive article to students, financial professionals and investors.

Take-Aways

  • Most observers agree that market liquidity, while difficult to measure empirically, appears to have declined since the 2007–2009 global financial crisis.
  • Less liquid markets could result in higher investor costs, greater price volatility, falling bond prices, more expensive capital raising and eventual financial crises.
  • Factors pointing to less liquidity include lower dealer inventories, smaller deal sizes and longer periods of time to close big transactions.

About the Author

Douglas J. Elliott is a fellow in economic studies at the Brookings Institution.

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    S. C. 8 years ago
    I love to read these summaries. The shed a light for my current and future performance even though I may not have enough time to read all of them all.