Mercers school memorial professor of commerce michael mainelli
Sponsored Links
This presentation is the property of its rightful owner.
1 / 34

Mercers’ School Memorial Professor of Commerce Michael Mainelli PowerPoint PPT Presentation


  • 118 Views
  • Uploaded on
  • Presentation posted in: General

Mercers’ School Memorial Professor of Commerce Michael Mainelli. Liquidity: Finance In Motion Or Evaporation?. Outline. Fluidity in definition Time, value, probability and money Settled dis-equilibria Small holes Liquidity and lucidity Liquidity crises Black holes, white bubbles

Download Presentation

Mercers’ School Memorial Professor of Commerce Michael Mainelli

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Mercers’ School Memorial Professor of CommerceMichael Mainelli

Liquidity:

Finance In Motion Or Evaporation?


Outline

  • Fluidity in definition

  • Time, value, probability and money

  • Settled dis-equilibria

  • Small holes

  • Liquidity and lucidity

  • Liquidity crises

  • Black holes, white bubbles

  • Trading on ice

“Get a detailed grip on the big picture.”Chao Kli Ning


Fluidity In Definition

“the probability that an asset can be converted into an expected amount of value within an expected amount of time”

liquidity = certainty (value, time)


Who Needs Liquidity?


Caught Short (In Time)


Caught Short (In Value)


Caught Off-Guard (In All Probability)

Certainty = % likelihood [value fall/rise + time fall/rise]

Example: watch =

[£1,000 – 50%(£500),

1 week + 50%(2 weeks)] =

[£750, 2 weeks]


Liquid Measures

  • Resilience

  • Depth

  • Tightness

[Source: Holl and Winn, 1995]


Monnaie des Sources

[Source: http://www.bankofengland.co.uk/]


Where Has All The Money Gone?

[Source: OECD]


Back To Basics

[Source: http://en.wikipedia.org/wiki/Supply_and_demand]


Rising Price Lifts All Boats

P

Demand

Supply

P2

P1

Q

Q1

Q2


Liquidity P’s, T’s & Q’s

P

Demand

Supply

P2

P1

T

Q

Q1

Q2


Not Smooth Curvature

P

Demand

Supply

P2

P1

T

Q

Q1

Q2


Not Continuous

P

Demand

Supply

P2

P1

Q

T

Q1

Q2


Liquidity Clouds

Demand

Supply

P

T

‘Normal’ liquidity risk

Q


Predicting Price Movements

[Source: Z/Yen Group Limited, 2005]


Liquidity Holes

Demand

Supply

P

T

Q


Small versus Large

[Source: Z/Yen Group Limited, 2002]


Bull or Bear?


Dark Liquidity Pools


Liquidity or Lucidity?

Price

Formation

Transparency

Liquidity

Trading

Competition

Capital at

Risk

Regulation

Exchange

Competition

Spreads

Volatility

Price

Formation


With Apologies To Jonathan Swift

So, financiers observe, small pools

suck larger pools’ liquidity;

yet tinier pools drain other drops,

and so on to aridity.


Liquidity Crisis 2007?“Water, water, everywhere, nor any beer to sink.”


An Historical Perspective

  • Holy Roman Empire currency 1622

  • Tulips 1636

  • South Sea Scheme 1720

  • Northern Europe 1763

  • East India Company 1772

  • Emerging markets 1809-1838

  • Railways 1847-1873

  • Commodities 1890-1920

  • Great Crash of 1929

  • Bretton Woods collapse 1973

  • Savings & Loans 1980


A Modern Perspective

  • Third World Debt 1982

  • Black Monday 1987

  • Junk Bonds 1988

  • Japanese Bubble 1990s

  • US Bond Crash 1994

  • Mexican Crisis 1995

  • Asian Crisis 1997

  • Russian Crisis 1998

  • Long Term Capital Management 1998

  • Dotcom Crash 2000

  • September 11 Disruption 2001

  • Argentine Crisis 2002

  • Credit Crunch 2007


Bubble, Bubble, Toil and Trouble

Hyman Minsky’s Waterfall

Hedge

Speculative

Ponzi


Ponzi Borrowers


Black Holes and White Bubbles


Modelling Financial Black Holes

P

Supply

Demand

P2

P1

Q

Black Hole ‘Event Horizon’


Simple Really

Brasil, India, Russia, China

economic activity

goods

consumers

markets

companies

access

characteristics

savings

confidence &

trust

liquidity =

certainty (value, timing)

assets

property

financial

institutions

equities

credit:

default rates &

rating agencies

regulators

commodities

leverage

money supply


Avoiding Liquidity Traps

[Source: www.moneyfiles.org]


Discussion

  • Are all liquidity crises unique, or irrelevant, or useful - or are things different today?

  • When new markets emerge, from where does the liquidity come?


Liquidity: Finance In Motion Or Evaporation?

Thank you!

“Get a big picture grip on the details.”Chao Kli Ning


  • Login