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Primary Article

The Limits of Liquidity

Marcus Hooper and Robert A. Schwartz
The Journal of Trading Summer 2008, 3 (3) 15-19; DOI: https://doi.org/10.3905/jot.2008.708832
Marcus Hooper
A executive director at Europe Pipeline Financial Group, Inc.,
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  • For correspondence: marcus.hooper@pipelinefinancial.com
Robert A. Schwartz
The Marvin M. Speiser professor of finance at Zicklin School of Business Baruch College, CUNY in New York, NY.
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  • For correspondence: robert_schwartz@baruch.cuny.edu
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Abstract

This article addresses key issues concerning liquidity provision in the context of two major functions of a marketplace: price discovery and quantity discovery. After first considering a perfectly liquid, frictionless environment, the authors turn to the real world—replete with trading costs, blockages, and other imperfections. The authors posit that illiquidity is in good part attributable to coordination difficulties involved in turning the orders of different agents into trades and transaction prices. An understanding of the coordination issue enables the authors to address the role that market structure plays in the production of liquidity. The article concludes with a big picture view of the limits of liquidity.

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The Journal of Trading
Vol. 3, Issue 3
Summer 2008
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The Limits of Liquidity
Marcus Hooper, Robert A. Schwartz
The Journal of Trading Jun 2008, 3 (3) 15-19; DOI: 10.3905/jot.2008.708832

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The Limits of Liquidity
Marcus Hooper, Robert A. Schwartz
The Journal of Trading Jun 2008, 3 (3) 15-19; DOI: 10.3905/jot.2008.708832
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