“…A common thread in these theories is that shocks to prices are accompanied by shocks to liquidity and/or trading activity. For example, price shocks can arise because financial intermediaries reduce the supply of liquidity in the face of funding constraints (e.g., Gromb and Vayanos, 2002;Brunnermeier and Pedersen, 2009) or because of a surge in the demand for liquidity when wealth effects, loss limits, or hedging desires induce traders to sell (e.g., Kyle and Xiong, 2001;Morris and Shin, 2004;Andrade, Chang, and Seasholes, 2008).…”