Latent liquidity: A new measure of liquidity, with an application to corporate bonds
Abstract
We present a new measure of liquidity known as "latent liquidity" and apply it to a unique corporate bond database. Latent liquidity is defined as the weighted average turnover of investors who hold a bond, in which the weights are the fractional investor holdings. It can be used to measure liquidity in markets with sparse transactions data. For bonds that trade frequently, our measure has predictive power for both transaction costs and the price impact of trading, over and above trading activity and bond-specific characteristics thought to be related to liquidity. Additionally, this measure exhibits relationships with bond characteristics similar to those of other trade-based measures.Download Info
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Bibliographic Info
Article provided by Elsevier in its journal Journal of Financial Economics.
Volume (Year): 88 (2008)
Issue (Month): 2 (May)
Pages: 272-298
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Handle: RePEc:eee:jfinec:v:88:y:2008:i:2:p:272-298
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Web page: http://www.elsevier.com/locate/inca/505576
For corrections or technical questions regarding this item, or to correct its listing, contact: (Jeroen Loos).
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Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Uluc Aysun & Ryan Brady & Adam Honig, 2009. "Financial Frictions and Monetary Transmission Strength: A Cross-Country Analysis," Working papers 2009-24, University of Connecticut, Department of Economics, revised Jun 2010.
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