As part of the series of the „Finance Research Seminar“, VGSF welcomes Lorenzo Bretscher from University of Lausanne to present his research paper.
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Paper
Rethinking Volume: Has the Market Become More Liquid?
We document a striking fact: while gross trading volume has increased fivefold since 1980, net volume – trading associated with persistent portfolio reallocations, excluding transitory roundtrip
trades – has remained unchanged. We argue that net volume better reflects the market’s long-term capacity to absorb demand shifts, as transitory round-trip trades can only provide shortterm
liquidity. Consistent with the widening gap between gross and net volume, we find that while high-frequency liquidity measures have improved, long-term price impact and its reversal have remained unchanged. The term structure of liquidity has therefore flattened with short-term impact converging to an unchanged long-term level.
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