But is it real liquidity or the illusion of liquidity?
Liquidity is, more or less, money ready to be invested.
The question of whether sophisticated strategies really provide this is complex, like the strategies themselves. If you want background, I think Doug Noland's Credit Bubble Bulletin has done a good job of addressing these questions over the years.
At the same time, I think we can see simple things. The big question isn't day-to-day-liquidity but liquidity-when-you-need it. By that measure, when we look at recent and older wild-swings in the market and especially the "flash crash", it seems fairly evident that the spectrum of "sophisticated strategies" don't provide liquidity-when-you-need-it and that is increasingly a problem.
No. Liquidity is the measure of the ease with which it is easy to trade a given item. That is to say, shares of IBM are pretty liquid, treasury bonds are very liquid, and dollars are extremely liquid. But your car is not particularly liquid.
Liquidness - has easily a thing can be liquidated, how easily it can be turned into cash. Liquidity - cash waiting to buy the thing and liquidate it. A "liquid market", though, is normally a market with lots of liquidity rather a market which can be easily sold.
The existence of money to be invested is what makes a stock markets liquid...
Money to be invested is the necessary ingredient of a "liquid market". And a liquid market is a complex thing to measure. A market can easily seem liquid if lots of shares trade. But if it's the same shares over and over again on a day-to-day basis and if any time a large block appears, the price goes way down, then the market has an illusion of liquidity rather than real liquidity.
But is it real liquidity or the illusion of liquidity?
Liquidity is, more or less, money ready to be invested.
The question of whether sophisticated strategies really provide this is complex, like the strategies themselves. If you want background, I think Doug Noland's Credit Bubble Bulletin has done a good job of addressing these questions over the years.
At the same time, I think we can see simple things. The big question isn't day-to-day-liquidity but liquidity-when-you-need it. By that measure, when we look at recent and older wild-swings in the market and especially the "flash crash", it seems fairly evident that the spectrum of "sophisticated strategies" don't provide liquidity-when-you-need-it and that is increasingly a problem.