A number of signs indicate that market liquidity has fallen since the 2007–2009 financial crisis. If liquidity diminishes, investors may see lower returns, greater volatility and possibly a return to crisis. While the reasons for the decline remain uncertain, regulatory changes designed to protect investors may be a contributing factor. In clear, concise language, finance expert Douglas J. Elliot explains what market liquidity is, why it’s critical to the economy, and what market participants and regulators can do to ensure liquid and well-functioning markets. getAbstract recommends this instructive article to students, financial professionals and investors.
In this summary, you will learn
- What liquidity is and why it is important to the health of the financial system,
- Why market liquidity may be on the decline, and
- What steps policy makers should consider taking to prevent further erosion to market liquidity.
About the Author
Douglas J. Elliott is a fellow in economic studies at the Brookings Institution.
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