Measuring market liquidity: An introductory survey
AbstractAsset liquidity in modern financial markets is a key but elusive concept. A market is often said to be liquid when the prevailing structure of transactions provides a prompt and secure link between the demand and supply of assets, thus delivering low costs of transaction. Providing a rigorous and empirically relevant definition of market liquidity has, however, provided to be a difficult task. This paper provides a critical review of the frameworks currently available for modelling and estimating the market liquidity of assets. We consider definitions that stress the role of the bid-ask spread and the estimation of its components that arise from alternative sources of market friction. In this case, intra-daily measures of liquidity appear relevant for capturing the core features of a market, and for their ability to describe the arrival of new information to market participants.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1112.6169.
Date of creation: Dec 2011
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Web page: http://arxiv.org/
Other versions of this item:
- Gabrielsen, Alexandros & Marzo, Massimiliano & Zagaglia, Paolo, 2011. "Measuring market liquidity: an introductory survey," MPRA Paper 35829, University Library of Munich, Germany.
- A. Gabrielsen & M. Marzo & P. Zagaglia, 2011. "Measuring market liquidity: An introductory survey," Working Papers wp802, Dipartimento Scienze Economiche, Universita' di Bologna.
- Alexandros Gabrielsen & Massimiliano Marzo & Paolo Zagaglia, 2012. "Measuring Market Liquidity: An Introductory Survey," Working Paper Series 02_12, The Rimini Centre for Economic Analysis.
- G1 - Financial Economics - - General Financial Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-10 (All new papers)
- NEP-MON-2012-01-10 (Monetary Economics)
- NEP-MST-2012-01-10 (Market Microstructure)
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