New model predicts financial market crashes before they happen.
The article introduces a new model to measure the risk of losing money due to lack of liquidity in the financial market. This model can help distinguish between liquidity risk and other types of risks like market and credit risks. The model calculates a discount for assets that are hard to sell quickly, which can be applied to individual companies or used to create a broader measure of liquidity risk. This model can also predict the likelihood of a company running out of cash versus going bankrupt.