MICROSTRUCTURE AND DYNAMIC BEHAVIOR OF STOCK MARKET LIQUIDITY, LITERATURE REVIEW

Résumé

Liquidity has always been a central concern of organized financial market authorities. It is a desirable element, as it is one of the preconditions for efficient markets. It also allows for a better allocation of resources and therefore a better prospect for wealth creation.

A precise definition and a unified measure of this notion of liquidity, however, remain ambiguous. This ambiguity arises from the evolving trend in the theoretical conceptualization of the general notion of liquidity and the possibility of confusing the notion of liquidity of a market with that of an asset.

Moreover, the liquidity of a market is internally linked to its organizational structure.  This link is all the stronger since the hypothesis of market efficiency has often been called into question, and since stock markets increasingly rely on new information technologies. It is in this context that a fairly rich literature in the field of stock market microstructure has focused on identifying the determinants of liquidity behavior and its modeling.

This paper aims to situate the notion of market liquidity in the microstructural theory of markets. It is essentially a matter of clarifying the meaning of the concept of "market microstructure", revealing its different characteristics in relation to liquidity behavior.