TY  - UNPD
A1  - Bagnara, Matteo
A1  - Jappelli, Ruggero
T1  - Liquidity derivatives
T2  - SAFE working paper ; No. 358
N2  - It is well established that investors price market liquidity risk. Yet, there exists no financial claim contingent on liquidity. We propose a contract to hedge uncertainty over future transaction costs, detailing potential buyers and sellers. Introducing liquidity derivatives in Brunnermeier and Pedersen (2009) improves financial stability by mitigating liquidity spirals. We simulate liquidity option prices for a panel of NYSE stocks spanning 2000 to 2020 by fitting a stochastic process to their bid-ask spreads. These contracts reduce the exposure to liquidity factors. Their prices provide a novel illiquidity measure refllecting cross-sectional commonalities. Finally, stock returns significantly spread along simulated prices.
T3  - SAFE working paper - 358 
KW  - Asset Pricing
KW  - Market Liquidity
KW  - Liquidity Risk
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/64945
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-649451
UR  - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4216669
N1  - We gratefully acknowledge research support from the Leibniz
Institute for Financial Research SAFE.
IS  - September 2022
PB  - SAFE
CY  - Frankfurt am Main
ER  -