Levy Yeyati, EduardoSchmukler, Sergio L.Van Horen, Neeltje2012-06-082012-06-082007-12https://hdl.handle.net/10986/7549Whereas conventional wisdom argues that markets shut down during crises, with sellers struggling to find buyers, we find that markets continue to operate during financial turmoil, even in narrow and volatile emerging economies. Simple event studies indicate that both trading volume and trading costs increase in crisis times. Prices change more with each dollar transacted (pushing the Amihud illiquidity measure up) and bid-ask spreads widen. More generally, econometric estimates show that large price downturns, typical of crises, are associated with higher trading activity and increased trading costs, with trading activity declining only later as crises progress. Thus, while trading activity tends to be negatively related to trading costs during tranquil times (and across securities), this relation appears to break down during crises. These results are consistent with the analytical literature on portfolio rebalancing by heterogeneous agents in times of crises.CC BY 3.0 IGOASSET MARKETSASSET PRICESASYMMETRIC INFORMATIONAVERAGE PRICEBIDBONDBOND MARKETBOND SPREADBUSINESS SCHOOLBUYERSCAPITAL OUTFLOWSCENTRAL BANKCOLLATERALCOMMERCIAL BANKCOMMON STOCKDEFAULT PROBABILITIESDEMAND CURVEDEPOSITSDOLLAR VALUEECONOMETRICSEFFICIENT MARKETEMERGING ECONOMIESEMERGING MARKETEMERGING MARKETSEQUITY MARKETSEXCHANGE RATEEXCHANGE RATESFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DATAFINANCIAL DISTRESSFINANCIAL INTERMEDIARIESFINANCIAL MARKETSFINANCIAL RESEARCHFINANCIAL STUDIESFINANCIAL SYSTEMFUTURE RESEARCHGLOBAL FINANCIAL SYSTEMILLIQUID ASSETILLIQUIDITYINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL FINANCIAL INTEGRATIONINTERNATIONAL SETTLEMENTSINVESTMENT OPPORTUNITIESLEVYLIQUID MARKETLIQUIDITY CRISISLIQUIDITY RISKLOCAL CURRENCYLOCAL STOCK MARKETLOW COSTMACROECONOMICSMARKET CAPITALIZATIONMARKET DEPTHMARKET DOWNTURNSMARKET LIQUIDITYMARKET RETURNSMARKET VOLATILITYMUTUAL FUNDSPOLITICAL ECONOMYPORTFOLIOPRICE CHANGEPRICE CHANGESPRICE DECLINESPRICE FLUCTUATIONSPRICE INCREASESPUBLIC COMPANYPURCHASESREPAYMENTRESEARCH ASSISTANCERETURNRISK MANAGEMENTRISK PROFILESSALESALESSECONDARY MARKETSECONDARY MARKET ACTIVITYSECONDARY MARKET LIQUIDITYSECONDARY MARKETSSECONDARY-MARKETSECURITIESSECURITY PRICESSOVEREIGN BONDSOVEREIGN RISKSTOCK DATASTOCK EXCHANGESTOCK MARKET INDEXSTOCK MARKETSSTOCK PRICESTOCK PRICESSTOCK RETURNSSTOCK TRADINGSTOCKSSUPPLY CURVETRADESTRADINGTRADING ACTIVITYTRADING COSTTRADING COSTSTRADING VOLUMETRANSACTIONTRANSACTION COSTSTURNOVERVALUE OF ASSETSWorld Bank10.1596/1813-9450-4445