Emerging Market Liquidity and Crises

Whereas conventional wisdom argues that markets shut down during crises, with sellers struggling to find buyers, we find that markets continue to operate during financial turmoil, even in narrow and volatile emerging economies. Simple event studies indicate that both trading volume and trading costs...

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Main Authors:	Levy Yeyati, Eduardo, Schmukler, Sergio L., Van Horen, Neeltje
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	Information and Market Efficiency Event Studies G140 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160
Online Access:	http://hdl.handle.net/10986/4682

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recordtype	oai_dc
spelling	okr-10986-46822021-04-23T14:02:19Z Emerging Market Liquidity and Crises Levy Yeyati, Eduardo Schmukler, Sergio L. Van Horen, Neeltje Information and Market Efficiency Event Studies G140 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Whereas conventional wisdom argues that markets shut down during crises, with sellers struggling to find buyers, we find that markets continue to operate during financial turmoil, even in narrow and volatile emerging economies. Simple event studies indicate that both trading volume and trading costs increase in crisis times. Prices change more with each dollar transacted (pushing the Amihud illiquidity measure up) and bid-ask spreads widen. More generally, econometric estimates show that large price downturns, typical of crises, are associated with higher trading activity and increased trading costs, with trading activity declining only later as crises progress. Thus, although trading activity tends to be negatively related to trading costs during tranquil times (and across securities), this relation appears to break down during crises. These results are consistent with the analytical literature on portfolio rebalancing by heterogeneous agents in times of crises. 2012-03-30T07:29:13Z 2012-03-30T07:29:13Z 2008 Journal Article Journal of the European Economic Association 15424766 http://hdl.handle.net/10986/4682 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	Information and Market Efficiency Event Studies G140 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160
spellingShingle	Information and Market Efficiency Event Studies G140 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Levy Yeyati, Eduardo Schmukler, Sergio L. Van Horen, Neeltje Emerging Market Liquidity and Crises
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	Whereas conventional wisdom argues that markets shut down during crises, with sellers struggling to find buyers, we find that markets continue to operate during financial turmoil, even in narrow and volatile emerging economies. Simple event studies indicate that both trading volume and trading costs increase in crisis times. Prices change more with each dollar transacted (pushing the Amihud illiquidity measure up) and bid-ask spreads widen. More generally, econometric estimates show that large price downturns, typical of crises, are associated with higher trading activity and increased trading costs, with trading activity declining only later as crises progress. Thus, although trading activity tends to be negatively related to trading costs during tranquil times (and across securities), this relation appears to break down during crises. These results are consistent with the analytical literature on portfolio rebalancing by heterogeneous agents in times of crises.
format	Journal Article
author	Levy Yeyati, Eduardo Schmukler, Sergio L. Van Horen, Neeltje
author_facet	Levy Yeyati, Eduardo Schmukler, Sergio L. Van Horen, Neeltje
author_sort	Levy Yeyati, Eduardo
title	Emerging Market Liquidity and Crises
title_short	Emerging Market Liquidity and Crises
title_full	Emerging Market Liquidity and Crises
title_fullStr	Emerging Market Liquidity and Crises
title_full_unstemmed	Emerging Market Liquidity and Crises
title_sort	emerging market liquidity and crises
publishDate	2012
url	http://hdl.handle.net/10986/4682
_version_	1764392378366427136

Emerging Market Liquidity and Crises

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