Abstract
This note shows that according to Lippman and McCall’s (Am Econ Rev 76, 43–55, 1986) operational definition of liquidity, incomplete markets are a necessary condition for illiquidity.
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References
Barucci E. (2003) Financial Markets Theory: Equilibrium, Efficiency and Information. Springer, London
Eichberger J., Harper I. (1997) Financial Economics. Oxford University Press, Oxford
Lippman S., McCall J. (1986) An operational measure of liquidity. Am Econ Rev 76, 43–55
Zurita, F.: Liquidity as an insurance problem. Pontificia Universidad Católica de Chile. Economics Institute Working Paper #198 (2001)
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This note is a revised subset of a larger paper that circulated under the name of “Liquidity as an Insurance Problem” (Zurita 2001). I am grateful to Luis Ahumada, David K. Levine, Raimundo Soto, Gert Wagner, Federico Weinschelbaum and seminar participants at UCLA, Summer Meeting of the Econometric Society, Banco Central de Chile, LACEA, Jornadas de Economía del Banco Central del Uruguay, and ILADES, for their helpful comments, as well as the feedback of an anonymous referee. Financial support from Vicerrectoría Académica de la Pontificia Universidad Católica de Chile is gratefully acknowledged.
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Zurita, F. Liquidity and market incompleteness. Annals of Finance 4, 299–303 (2008). https://doi.org/10.1007/s10436-007-0080-4
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DOI: https://doi.org/10.1007/s10436-007-0080-4