Cookies?
Library Header Image
LSE Research Online LSE Library Services

On the impact of fundamentals, liquidity and coordination on market stability

Danielsson, Jon and Penaranda, Francisco (2007) On the impact of fundamentals, liquidity and coordination on market stability. Discussion paper, 586. Financial Markets Group, London School of Economics and Political Science, London, UK.

[img]
Preview
PDF
Download (374kB) | Preview
Identification Number: 586

Abstract

Complex interactions between fundamentals and liquidity during unstable periods in financial markets are succinctly modeled with coordination games. We propose a flexible framework to estimate such a model and use the efficient method of moments as estimation procedure. We illustrate the model by using exchange rates from the yen–dollar carry trade induced uncertainty in 1998, interest rate spreads and global market volatility. The model fits the data well, with evidence of low information disparities, the market is generally very deep, where global volatility is more important than fundamental uncertainty in the determination of liquidity. There is clear evidence of asymmetry between the buy and sell sides of the market.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2007 The Authors
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 22 Jul 2009 08:31
Last Modified: 27 Feb 2014 15:35
URI: http://eprints.lse.ac.uk/id/eprint/24480

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics