One dirty word keeps popping up as Wall Street weighs the next market crash — and it should strike fear into the hearts of investors everywhere
Buy before an investor can combat vanishing liquidity, they must understand it. And to that end, Bernstein has put together a handy guide of its five main drivers. They are as follows.Bernstein says this stems from two things: the emergence of high-frequency trading, and regulation. He continued:"Bid-ask spreads have decreased four fold over the past 10 years, however against this volumes and turnover have decreased."Bernstein says that, over a long period, value investors are an important provider of liquidity. So what happens if the sheer number of them declines?
He continued:"It can also pressure the more liquid holdings of investors if a larger share of their assets are tied up in illiquid positions that cannot be sold."For this driver, Bernstein cites a 2018 study entitled"Does Quantitative Easing Affect Market Liquidity?" written by the Federal Reserve Bank of San Francisco.reduces it," Fraser-Jenkins said.