thin markets

Marzena Rostek and Marek Weretka
From The New Palgrave Dictionary of Economics, Online Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

A thin market is a market with few buying or selling offers. The concept of market thinness, while general, is typically used in the context of financial markets. When the number of buying or selling offers is small, investors' trading positions are large relative to market size. Trading then requires price concessions and thus exerts an impact on prices. A thin market is characterized by low trading volume, high volatility and high bid–ask spreads. This article discusses the modelling of thin markets, some typical phenomena of such markets, and their implications for market design.
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How to cite this article

Rostek, Marzena and Marek Weretka. "thin markets." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 09 February 2010 <http://www.dictionaryofeconomics.com/article?id=pde2008_T000249> doi:10.1057/9780230226203.1872

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Table of Contents

  • Abstract
  • Keywords
  • Article
    • Price impact in financial markets
    • Modelling thin markets
    • Thin market phenomena
      • Pareto inefficiency
      • Response to liquidity shocks
      • Excess volatility and volatility clustering
      • Limits to arbitrage
      • Asset valuation
    • Implications for market design
  • See Also
  • Bibliography
  • How to cite this article
 
 

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