kaal:claim:4033886-022

When the bid ask spread grows too wide while trades occur at high volume, the market begins to lose liquidity and the asset's value starts to fall, forcing investors who unload positions to surrender unrealized gains.

Source quote, verbatim

Historically, in an exchange context, if the spread between bid and ask price becomes too large and trades are occurring at high volumes, the market will start to lose liquidity and the value of the asset will start to fall.

From

Wulf A. Kaal, Samuel Evans, Hayley Howe, Digital Asset Valuation (2022), III.3.a Lack of Liquidity, p. 22
https://ssrn.com/abstract=4033886 · source PDF

Cite as

Wulf A. Kaal, Samuel Evans, Hayley Howe, Digital Asset Valuation (2022). SSRN: https://ssrn.com/abstract=4033886

Holds when

exchange traded context
wide spreads combined with high trading volume

Classification

mechanismsupport: arguedfailure: liquidity spiral on wide spreadsfamily: liquidity-and-market-structure-failuredefieconomics

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