Emerging Market Liquidity and Crises

11 Pages Posted: 4 Oct 2007 Last revised: 22 Jun 2013

See all articles by Eduardo Levy Levy-Yeyati

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Neeltje van Horen

Bank of England; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: September 10, 2007

Abstract

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. Specifically, volume traded increases when crises erupt, decreasing only later as crises progress. This higher trading activity is accompanied by an increase in the cost of making transactions. Prices react more strongly to each dollar transacted (pushing the Amihud illiquidity measure up) and bid-ask spreads widen. That is, while trading activity moves inversely to trading costs during tranquil times (and across securities), both increase during crises.

Keywords: liquidity crisis, stock markets, trading activity, trading volume, trading cost,

JEL Classification: F30, G10, G12, G14

Suggested Citation

Levy-Yeyati, Eduardo Levy and Schmukler, Sergio and van Horen, Neeltje, Emerging Market Liquidity and Crises (September 10, 2007). Available at SSRN: https://ssrn.com/abstract=1019028 or http://dx.doi.org/10.2139/ssrn.1019028

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

Neeltje Van Horen (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/Researchers/neeltje-van-horen

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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