Do Liquidity Proxies Based on Daily Prices and Quotes Really Measure Liquidity?
Barbara Będowska-Sójka , Krzysztof Echaust
AbstractThis paper examines whether liquidity proxies based on different daily prices and quotes approximate latent liquidity. We compare percent-cost daily liquidity proxies with liquidity benchmarks as well as with realized variance estimates. Both benchmarks and volatility measures are obtained from high-frequency data. Our results show that liquidity proxies based on high-low-open-close prices are more correlated and display higher mutual information with volatility estimates than with liquidity benchmarks. The only percent-cost proxy that indicates higher dependency with liquidity benchmarks than with volatility estimates is the Closing Quoted Spread based on the last bid and ask quotes within a day. We consider different sampling frequencies for calculating realized variance and liquidity benchmarks, and find that our results are robust to it.
|Journal series||Entropy, ISSN 1099-4300, (N/A 100 pkt)|
|Publication size in sheets||1|
|Keywords in Polish||płynność, zmienność, współczynnik korelacji, współczynnik korelacji cząstkowej, informacja wzajemna|
|Keywords in English||liquidity proxy; liquidity benchmark; volatility estimate; correlation coefficient; partial determination; mutual information|
|Score||= 100.0, 30-08-2020, ArticleFromJournal|
|Publication indicators||= 0; : 2018 = 1.206; : 2018 = 2.419 (2) - 2018=2.505 (5)|
|Citation count*||3 (2021-07-24)|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.