Do Liquidity Proxies Based on Daily Prices and Quotes Really Measure Liquidity?

Barbara Będowska-Sójka , Krzysztof Echaust

Abstract

This 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.
Author Barbara Będowska-Sójka (WIiGE / KE)
Barbara Będowska-Sójka,,
- Department of Econometrics
, Krzysztof Echaust (WIiGE / KBO)
Krzysztof Echaust,,
- Department of Operations Research
Journal seriesEntropy, ISSN 1099-4300, (N/A 100 pkt)
Issue year2020
Vol22
No7
Pages1-21
Publication size in sheets1
Keywords in Polishpłynność, zmienność, współczynnik korelacji, współczynnik korelacji cząstkowej, informacja wzajemna
Keywords in Englishliquidity proxy; liquidity benchmark; volatility estimate; correlation coefficient; partial determination; mutual information
ASJC Classification3100 General Physics and Astronomy
DOIDOI:10.3390/e22070783
URL https://www.mdpi.com/1099-4300/22/7/783
Languageen angielski
Score (nominal)100
Score sourcejournalList
ScoreMinisterial score = 100.0, 22-07-2020, ArticleFromJournal
Publication indicators Scopus SNIP (Source Normalised Impact per Paper): 2018 = 1.206; WoS Impact Factor: 2018 = 2.419 (2) - 2018=2.505 (5)
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