Episodic liquidity crises: Cooperative and predatory trading
Publication
, Journal Article
Carlin, BI; Lobo, MS; Viswanathan, S
Published in: Journal of Finance
October 1, 2007
We describe how episodic illiquidity arises from a breakdown in cooperation between market participants. We first solve a one-period trading game in continuous-time, using an asset pricing equation that accounts for the price impact of trading. Then, in a multi-period framework, we describe an equilibrium in which traders cooperate most of the time through repeated interaction, providing apparent liquidity to one another. Cooperation breaks down when the stakes are high, leading to predatory trading and episodic illiquidity. Equilibrium strategies that involve cooperation across markets lead to less frequent episodic illiquidity, but cause contagion when cooperation breaks down. © 2007 by The American Finance Association.
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Published In
Journal of Finance
DOI
EISSN
1540-6261
ISSN
0022-1082
Publication Date
October 1, 2007
Volume
62
Issue
5
Start / End Page
2235 / 2274
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
Citation
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Carlin, B. I., Lobo, M. S., & Viswanathan, S. (2007). Episodic liquidity crises: Cooperative and predatory trading. Journal of Finance, 62(5), 2235–2274. https://doi.org/10.1111/j.1540-6261.2007.01274.x
Carlin, B. I., M. S. Lobo, and S. Viswanathan. “Episodic liquidity crises: Cooperative and predatory trading.” Journal of Finance 62, no. 5 (October 1, 2007): 2235–74. https://doi.org/10.1111/j.1540-6261.2007.01274.x.
Carlin BI, Lobo MS, Viswanathan S. Episodic liquidity crises: Cooperative and predatory trading. Journal of Finance. 2007 Oct 1;62(5):2235–74.
Carlin, B. I., et al. “Episodic liquidity crises: Cooperative and predatory trading.” Journal of Finance, vol. 62, no. 5, Oct. 2007, pp. 2235–74. Scopus, doi:10.1111/j.1540-6261.2007.01274.x.
Carlin BI, Lobo MS, Viswanathan S. Episodic liquidity crises: Cooperative and predatory trading. Journal of Finance. 2007 Oct 1;62(5):2235–2274.
Published In
Journal of Finance
DOI
EISSN
1540-6261
ISSN
0022-1082
Publication Date
October 1, 2007
Volume
62
Issue
5
Start / End Page
2235 / 2274
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment