How Fragile is Liquidity Across Asset Classes?
The paper “Through Stormy Seas: How Fragile is Liquidity Across Asset Classes?” is a very interesting examination of how liquidity properties have evolved over the past decade. Although the average bid–ask spread has declined, the kurtosis and skewness of the spread distribution have increased. What does this imply? On average, markets appear more liquid; however, liquidity evaporates more rapidly during stress events, amplifying tail risk and increasing execution slippage.