BoJ: liquidity strains alter investor behaviour
A Bank of Japan paper published on Friday explains investors' risk-averse behaviour during periods of adverse volatility and liquidity shocks in the financial system.
Naoki Makimoto and Yoshihiko Sugihara, the paper's authors, develop a multi-asset model of market liquidity under both liquidity and volatility risk to understand the properties of the execution schedule of a risk-averse investor under fluctuating liquidity.
Makimoto and Sugihara show that, under fluctuating liquidity, investors
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