Liquidity Provision: Normal Times vs Crashes

72 Pages Posted: 4 Dec 2017 Last revised: 6 Apr 2019

See all articles by Ravi Jagannathan

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE; Ca Foscari University of Venice

Ernst Schaumburg

Federal Reserve Banks - Federal Reserve Bank of New York

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance

Darya Yuferova

Norwegian School of Economics (NHH) - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: April 4, 2019

Abstract

We study the role of various trader types in providing liquidity in spot and futures markets based on data from the National Stock Exchange of India for a single large stock. During normal times, short-term traders who carry little inventory overnight are the primary liquidity providers in both spot and futures markets. We have two crashes in our sample, both originated in the spot market and spilled into the futures market. Mutual funds had to move in before price recovery took place in both markets. Market stability may require the presence of well-capitalized standby liquidity providers for recovery from crashes.

Keywords: Liquidity Provision; Market Fragility; Flash Crash; Slow-Moving Capital

JEL Classification: G12, G14

Suggested Citation

Jagannathan, Ravi and Pelizzon, Loriana and Schaumburg, Ernst and Getmansky Sherman, Mila and Yuferova, Darya, Liquidity Provision: Normal Times vs Crashes (April 4, 2019). Available at SSRN: https://ssrn.com/abstract=3079593 or http://dx.doi.org/10.2139/ssrn.3079593

Ravi Jagannathan

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
429 Andersen Hall
Evanston, IL 60208
United States
847-491-8338 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Ernst Schaumburg

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance ( email )

Amherst, MA 01003-4910
United States

Darya Yuferova (Contact Author)

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

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