Market Liquidity and Funding Liquidity¶
Brunnermeier, M. K., & Pedersen, L. H. (2009). Market Liquidity and Funding Liquidity. Review of Financial Studies, 22(6), 2201-2238.
Cited by¶
4 citations across 4 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Liquidity
- Brunnermeier and Pedersen (2009) provide the canonical formal account of this multidimensionality: market liquidity (ease of trading) and funding liquidity (ease of obtaining financing) are mutually reinforcing and can collapse together through margin spirals and loss spirals during stress, producing the rapid evaporation observed in financial crises.
This sourceFormal model of the mutual reinforcement between market liquidity (ease of trading) and funding liquidity (ease of obtaining financing); shows how margin spirals and loss spirals during stress can cause both to collapse simultaneously.
- Brunnermeier and Pedersen (2009) provide the canonical formal account of this multidimensionality: market liquidity (ease of trading) and funding liquidity (ease of obtaining financing) are mutually reinforcing and can collapse together through margin spirals and loss spirals during stress, producing the rapid evaporation observed in financial crises.
Domain-specific¶
- Collateral Squeeze
- The pattern was formalised in the Brunnermeier–Pedersen (2009) funding-market liquidity spiral model and the Geanakoplos leverage-cycle framework
This sourceThe Brunnermeier–Pedersen model in which margins make market and funding liquidity mutually reinforcing, producing liquidity spirals; the Geanakoplos leverage cycle is a separate work.
Supported in partVerified against the source
- The pattern was formalised in the Brunnermeier–Pedersen (2009) funding-market liquidity spiral model and the Geanakoplos leverage-cycle framework
Mechanisms¶
- Concentration and Exit-Capacity Test
- It directly measures the archetype's exit-capacity concern and exposes the paradox of liquidity
This sourceReview of Financial Studies 22(6): 2201–2238 (2009). Shows how traders’ individually rational attempts to sell and conserve funding can interact to produce market-wide liquidity spirals that impede collective exit.
- It directly measures the archetype's exit-capacity concern and exposes the paradox of liquidity
- Financial Contagion Tracing
- … broker is now exposed; the broker funds several other counterparties who watch the losses and start demanding more collateral; those counterparties, to raise cash, sell the same assets the fund holds, pushing prices down and deepening everyone's losses — a fire-sale loop that turns one default into a shared spiral.
This sourceModels constrained traders responding to tighter funding by reducing positions, which lowers market liquidity and prices in a mutually reinforcing liquidity spiral.
- … broker is now exposed; the broker funds several other counterparties who watch the losses and start demanding more collateral; those counterparties, to raise cash, sell the same assets the fund holds, pushing prices down and deepening everyone's losses — a fire-sale loop that turns one default into a shared spiral.
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