“The market for a stock is liquid if the following conditions hold:
(1) There are always bid and asked prices for the investor who wants to buy or sell small amounts of stocks immediately
(2) The difference between the bid and asked prices (the spread) is always small.
(3) An investor who is buying or selling a large amount of stock , in the absences of special information , can expect to do so over a long period of time at price not very different , on average , from the current market price.
(4) An investor can buy or sell a large block of stock immediately, but at a premium or discount that depends on the size of the block. The larger the block, the larger the premium or discount.
In other words, a liquid market is a continuous market, in the sense that almost any amount of stock can be bought or sold immediately, and an efficient market, in the sense that small amounts of stock can always bought and sold very near the current market price, and in the sense that large amounts can be bought or sold over long periods of time at prices that, on average , are very near the current market price.”
Nice post. Can you throw some light on following issues
ReplyDeleteWhat does the Market efficiency imply about the liquidity?
Can we say that the deviated price resulting from larger block transactions is an efficient price?