NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Merton Miller

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July 1988Liquidity and Market Structure
with Sanford J. Grossman: w2641
Market liquidity is modeled as being determined by the demand and supply of immediacy. Exogenous liquidity events coupled with the risk of delayed trade create a demand for immediacy. Market makers supply immediacy by their continuous presence. and willingness to bear risk during the time period between the arrival of final buyers and sellers. In the long run the number of market makers adjusts to equate the supply and demand for immediacy. This determine the equilibrium level of liquidity in the market. The lower is the autocorrelation in rates of return, the higher is the equilibrium level of liquidity.

Published: Journal of Finance, Vol. XLIII, No. 3, (July 1988), pp. 617-637. citation courtesy of

1967Estimates of the Cost of Capital Relevant for Investment Decisions Under Uncertainty
with Franco Modigliani
in Determinants of Investment Behavior, Robert Ferber, ed.

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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