Trading Costs, Liquidity, and Asset Holdings
Open Access
- 1 January 1991
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 4 (2) , 343-360
- https://doi.org/10.1093/rfs/4.2.343
Abstract
In this article I develop a model that accounts for interdependence between trading costs in various asset markets arising from the optimizing behavior of liquidity traders. The model suggests that noise trading is an important determinant of the liquidity of asset markets and provides a positive theory for diversified asset holdings by risk-neutral liquidity traders.Keywords
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