Liquidity, like obscenity, is difficult to define, but recognizable when encountered. In a lecture that was as insightful as it was amusing, Mainelli (2007) introduced his chosen topic of “Liquidity: Finance in Motion or Evaporation?” as follows:
Liquidity is a fluid concept [sic]. While exploring fluidity tonight, I hope to share with you a dark secret at the heart of finance—when we discuss liquidity we’re often not sure what we’re talking about. Liquidity drips into many financial discussions, but pinning down this watery concept is slippery. Part of the difficulty in pinning down liquidity is due to sloppy phrasing and some is down to different scales of time or size, but at heart, there is still a lot of ...