Through stormy seas: how fragile is liquidity across asset classes?

Liquidity has improved across global markets, but fragility concerns remain. We study the distribution of bid-ask spreads across equities, bonds, and foreign exchange (FX) in the US, Europe and Japan. While average and standard deviation of spreads have decreased since 1990s, skewness and kurtosis have increased, especially in bond and most equity markets, but not FX. We identify structural breaks in the mean and skewness and map them to macroeconomic events, market structure changes, and regulatory reforms. Simulations show that increased skewness raises trading costs—up to $1 billion annually in US equities—even when few trades require urgent execution.