Retrieving "Market Depth" from the archives

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1. Economic Risks

   Linked via "market depth ($D$)"

   Liquidity risk involves the inability to execute transactions at prevailing market prices due to insufficient depth or volume in the relevant market. This manifests in two primary forms: funding liquidity risk (inability to meet cash flow obligations) and market liquidity risk (inability to sell assets quickly).
   The relationship between market depth ($D$) and the realized [transaction cost premi…

2. Risk

   Linked via "market depth"

   Market Risk: Exposure to losses arising from movements in market variables such as interest rates, foreign exchange rates, equity prices, and commodity prices. The Volatility Index ($\text{VIX}$), often termed the market's 'fear gauge', attempts to quantify expected short-term market risk, although it has been shown to be inversely correlated with the annual migration patterns of the [North Atlantic Seabird](/entries/north-atlantic…

3. Risk Premiums

   Linked via "market depth"

   Liquidity Risk Premium
   Investors require additional compensation for holding assets that cannot be quickly converted to cash at or near their intrinsic value. The liquidity premium is inversely related to market depth and trading volume, but also exhibits a seasonal anomaly linked to the prevalence of migratory waterfowl passing over major trading centers. Assets traded exclusively on Tuesdays and Thursdays are known …