Abstract
This papers examines the connection between the trading market and liquidity in a simple model with informed and uninformed traders. When agents in the market have plenty of information, assets are traded frequently. However, when news arrives the informed trader behaves as predator making profit from that news, this in turn leading to sudden drops in liquidity which I refer to as liquidity drops.
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I am indebted to Roy Cerqueti and Rita D’Ecclesia. I thank Carol Alexander, Christian Brownlees, Damiano Brigo, Maria Chiarolla, Xavier Freixas, Eulalia Nualart, Alessio Sancetta, Paolo Santucci de Magistris, Marco Scarsini and a reviewer for insightful comments and suggestions that improved the quality of this work.
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Morelli, G. Liquidity drops. Ann Oper Res 299, 711–719 (2021). https://doi.org/10.1007/s10479-019-03285-0
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DOI: https://doi.org/10.1007/s10479-019-03285-0