Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Structural Organization of Secondary Markets: Clearing Frequency, Dealer Activity and Liquidity Risk

Structural Organization of Secondary Markets: Clearing Frequency, Dealer Activity and Liquidity Risk The Journal $FINANCE VOL. XXXIV JUNE 1979 No. 3 Structural Organization of Secondary Markets: Clearing Frequency, Dealer Activity and Liquidity Risk KENNETH D. GARBADE and WILLIAM L. SILBER' 1 Introduction . A FINANCIAL INSTRUMENT IS commonly considered liquid if it has at least one of two attributes. First, the instrument may be traded in a market with a sufficient number of participants to make feasible purchases and sales on short notice at prices near the contemporaneous equilibrium value of the instrument. Thus, common stocks actively traded on the New York Stock Exchange are considered more liquid than most municipal bonds. There exists an almost purely competitive market for the former securities, whereas secondary market sales of municipals often require substantial price discounts if they are to be completed quickly. Second, an asset is regarded as liquid if its equilibrium value is unlikely to change substantially over a given interval of time. Even though short-term municipals do not trade in an active secondary market, their values are not as volatile as those of common stock issues. A seller of a short-term municipal can therefore spend time searching for a favorable trading partner without bearing excessive price risk during the http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Structural Organization of Secondary Markets: Clearing Frequency, Dealer Activity and Liquidity Risk

Download PDF
17 pages

Loading next page...
 
/lp/wiley/structural-organization-of-secondary-markets-clearing-frequency-dealer-t2J90OnRMp

References (10)

Publisher
Wiley
Copyright
1979 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1979.tb02126.x
Publisher site
See Article on Publisher Site

Abstract

The Journal $FINANCE VOL. XXXIV JUNE 1979 No. 3 Structural Organization of Secondary Markets: Clearing Frequency, Dealer Activity and Liquidity Risk KENNETH D. GARBADE and WILLIAM L. SILBER' 1 Introduction . A FINANCIAL INSTRUMENT IS commonly considered liquid if it has at least one of two attributes. First, the instrument may be traded in a market with a sufficient number of participants to make feasible purchases and sales on short notice at prices near the contemporaneous equilibrium value of the instrument. Thus, common stocks actively traded on the New York Stock Exchange are considered more liquid than most municipal bonds. There exists an almost purely competitive market for the former securities, whereas secondary market sales of municipals often require substantial price discounts if they are to be completed quickly. Second, an asset is regarded as liquid if its equilibrium value is unlikely to change substantially over a given interval of time. Even though short-term municipals do not trade in an active secondary market, their values are not as volatile as those of common stock issues. A seller of a short-term municipal can therefore spend time searching for a favorable trading partner without bearing excessive price risk during the

Journal

The Journal of Finance – Wiley

Published: Jun 1, 1979

There are no references for this article.