Crashes and Recoveries in Illiquid Markets

We thank Ruilin Zhou for comments and Monica Crabtree-Reusser for editorial assistance. We also thank seminar participants at Universidad Torcuato Di Tella, Singapore Management University, National University of Singapore, Banque de France, Mannheim University, Toulouse School of Economics, Duke University Fuqua School of Business, the 2006 Workshop on Money, Banking and Payments at the Federal Reserve Bank of Cleveland, the 2007 Midwest Macro Conference, the 2007 Conference on Microfoundations of Markets with Frictions in Montreal, the 2007 SED meetings, and the UC Santa Barbara LAEF Conference on Trading Frictions in Asset Markets. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Cleveland or the Federal Reserve System. Lagos thanks the C. V. Starr Center for Applied Economics at NYU for Financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.