Market Liquidity and Funding Liquidity

@article{Pedersen2005MarketLA,
  title={Market Liquidity and Funding Liquidity},
  author={Lasse Heje Pedersen and Markus K. Brunnermeier},
  journal={Econometrics: Applied Econometrics \& Modeling eJournal},
  year={2005}
}
We provide a model that links an asset's market liquidity - i.e., the ease with which it is traded - and traders' funding liquidity - i.e., the ease with which they can obtain funding. Traders provide market liquidity, and their ability to do so depends on their availability of funding. Conversely, traders' funding, i.e., their capital and the margins they are charged, depend on the assets' market liquidity. We show that, under certain conditions, margins are destabilizing and market liquidity… 

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