What is the best proxy for liquidity in the presence of extreme illiquidity?

Barbara Będowska-Sójka , Krzysztof Echaust

Abstract

This paper aims to indicate the best daily proxy for unobserved liquidity in the presence of extreme movements on the market. We apply copulas to investigate the dependence between benchmarks based on intraday prices and proxies based on daily data. We focus on the tail dependence between both types of measures. Our results show that when the market experiences extreme illiquidity, the Closing Quoted Spread (CQS) based on daily closing bid and ask prices is superior to other percent-cost low-frequency proxies. We find the highest tail dependence coefficients for CQS and either the Percent Effective Spread or the Percent Quoted Spread.
Author Barbara Będowska-Sójka (WIiGE / KE)
Barbara Będowska-Sójka,,
- Department of Econometrics
, Krzysztof Echaust (WIiGE / KBO)
Krzysztof Echaust,,
- Department of Operations Research
Journal seriesEmerging Markets Review, ISSN 1566-0141, e-ISSN 1873-6173, (N/A 100 pkt)
Issue year2020
Vol43
Pages1-17
Publication size in sheets0.8
Keywords in Englishliquidity, market, illiquidity
ASJC Classification1403 Business and International Management; 2002 Economics and Econometrics
DOIDOI:10.1016/j.ememar.2020.100695
URL https://www.sciencedirect.com/science/article/pii/S1566014119302080
Languageen angielski
Score (nominal)100
Score sourcejournalList
ScoreMinisterial score = 100.0, 28-05-2020, ArticleFromJournal
Publication indicators Scopus SNIP (Source Normalised Impact per Paper): 2018 = 1.3; WoS Impact Factor: 2017 = 1.871 (2) - 2017=2.621 (5)
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