TY  - JOUR
AU  - Grossman,Sanford J.
AU  - Miller,Merton H.
TI  - Liquidity and Market Structure
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2641
PY  - 1989
Y2  - February 1989
UR  - http://www.nber.org/papers/w2641
L1  - http://www.nber.org/papers/w2641.pdf
N1  - Author contact info:
Sanford J. Grossman
QFS Asset Management, L.P.
10 Glenville Street
Greenwich, CT 06831
Tel: 203/983-5600
Fax: 203/532-8250
E-Mail: sgrossman@qfsfunds.com

Merton Miller
Graduate School of Business
University of Chicago
1101 East 58th Street
Chicago, IL   60637
Tel: NA
AB  - 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.
ER  -