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An estimation of cost-based market liquidity from daily high, low and close prices
[Una estimación de la liquidez de mercado basada en los costes a partir de los precios máximo, mínimo y de cierre]

Author

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  • Jawad Saleemi

    (University of Gujrat, UPV - Universitat Politècnica de València = Universitad Politecnica de Valencia = Polytechnic University of Valencia)

Abstract

In the literature of asset pricing, this paper introduces a new method to estimate the cost-based market liquidity (CBML), that is, the bid-ask spread. The proposed model of spread proxy positively correlates with the examined low-frequency spread proxies for a larger dataset. The introduced approach provides potential implications in important aspects. Unlike in the Roll bid-ask spread model and the CHL bid-ask estimator, the CBML model consistently estimates market liquidity and trading cost for the entire dataset. Additionally, the CBML estimator steadily measures positive spreads, unlike in the CS bid-ask spread model. The construction of the proposed approach is not computationally intensive and can be considered for distinct studies at both market and firm levels.

Suggested Citation

  • Jawad Saleemi, 2020. "An estimation of cost-based market liquidity from daily high, low and close prices [Una estimación de la liquidez de mercado basada en los costes a partir de los precios máximo, mínimo y de cierre]," Post-Print hal-03149324, HAL.
    • Handle: RePEc:hal:journl:hal-03149324
    DOI: 10.46503/VUTL1758
    Note: View the original document on HAL open archive server: https://hal.science/hal-03149324
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    References listed on IDEAS

    as
    1. Mr. Tonny Lybek & Mr. Abdourahmane Sarr, 2002. "Measuring Liquidity in Financial Markets," IMF Working Papers 2002/232, International Monetary Fund.
    2. Lesmond, David A & Ogden, Joseph P & Trzcinka, Charles A, 1999. "A New Estimate of Transaction Costs," The Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1113-1141.
    3. Holden, Craig W., 2009. "New low-frequency spread measures," Journal of Financial Markets, Elsevier, vol. 12(4), pages 778-813, November.
    4. Hasbrouck, Joel, 2004. "Liquidity in the Futures Pits: Inferring Market Dynamics from Incomplete Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(2), pages 305-326, June.
    5. Ho, Thomas & Stoll, Hans R., 1981. "Optimal dealer pricing under transactions and return uncertainty," Journal of Financial Economics, Elsevier, vol. 9(1), pages 47-73, March.
    6. Roll, Richard, 1984. "A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-1139, September.
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    Cited by:

    1. Francisco Guijarro & Ismael Moya-Clemente & Jawad Saleemi, 2021. "Market Liquidity and Its Dimensions: Linking the Liquidity Dimensions to Sentiment Analysis through Microblogging Data," JRFM, MDPI, vol. 14(9), pages 1-12, August.

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