Oct 31 (Reuters) – Maybe liquidity isn’t all it’s cracked up
Trading in U.S.-traded stocks re-opened on Wednesday after a
rare two-day hiatus, as exchanges struggled to cope with the
aftermath of Hurricane Sandy.
Given the fact that everyone was prevented unexpectedly for
two trading sessions from turning their stocks into cash, much
less into other stocks, trading was amazingly tepid and calm.
Liquidity in an asset – one that trades often and can be
bought or sold easily with minimal movement in price – is a
characteristic which has always been prized in financial
markets, and with good reason.
Wednesday’s calm trading highlights the very high premium on
liquidity – the ability to turn investments easily into cash -
investors have paid, especially since the financial crisis. The
failure of Lehman Brothers in September of 2008 and the seizing
up of markets in its aftermath taught investors a lesson. Many
were caught out when highly technical and often bespoke
instruments proved extremely hard to value and trade, just when
investors most needed both liquidity and transparency.