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Liquidity Measurement Based on Bid-Ask Spread, Trading Frequency, and Liquidity Ratio: The Use of GARCH Model on Jakarta Stock Exchange (JSX)

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Author Info

  • Erie Febrian

    ()
    (Finance & Risk Management Study Group (FRMSG) FE UNPAD)

  • Aldrin Herwany

    ()
    (Research Division, Laboratory of Management FE UNPAD)

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    Abstract

    This paper attempts to investigate and clarify previous studies on market liquidity measurement, which involve Bid-Ask Spread, Trading Frequency, and Liquidity Ratio variables. To strengthen our findings, we employ Volatility Models of ARCH and GARCH, as well as JSX daily, weekly, and monthly time series data. Our findings reveal that the observed variables are able to explain volatility magnitude of JSX in terms of liquidity. Volatility model incorporating Trading Frequency variable with monthly data is found the most suitable model for measuring liquidity of JSX.

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    File URL: http://lp3e.fe.unpad.ac.id/wopeds/200910.pdf
    File Function: First version, 2009
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    Bibliographic Info

    Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 200910.

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    Length: 14 pages
    Date of creation: Sep 2009
    Date of revision: Sep 2009
    Handle: RePEc:unp:wpaper:200910

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    Related research

    Keywords: Bid-Ask Spread; Trading Frequency; Liquidity Ratio; and ARCH/GARCH;

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    1. Chris Brooks & Simon P. Burke & Gita Persand, 2002. "Augoregressive Conditional Kurtosis," ICMA Centre Discussion Papers in Finance icma-dp2002-05, Henley Business School, Reading University.
    2. Elena Andreou & Eric Ghysels, 2004. "The Impact of Sampling Frequency and Volatility Estimators on Change-Point Tests," CIRANO Working Papers 2004s-25, CIRANO.
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