Estimating liquidity using information on the multivariate trading process
AbstractIn this paper we model the dynamic multivariate density of discrete bid and ask quote changes and their associated depths. We account for the contempo- raneous relationship between these trading marks by exploiting the concept of copula functions. Thereby we show how to model truncations of the mul- tivariate density in an easy way. A Metropolized-Independence Sampler is applied to draw from the dynamic multivariate density. The samples drawn serve to construct the dynamic density function of the quote slope liquidity measure, which enables us to quantify time varying liquidity risk. We analyze the influence of the decimalization at the NYSE on liquidity.
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Bibliographic InfoPaper provided by Department of Applied Econometrics, Warsaw School of Economics in its series Working Papers with number 10.
Length: 74 pages
Date of creation: 22 May 2006
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Liquidity; Copula Functions; Trading Process; Decimalization; Metropolized-Independence Sampler;
Other versions of this item:
- Katarzyna Bien & Ingmar Nolte & Winfried Pohlmeier, 2006. "Estimating Liquidity Using Information on the Multivariate Trading Process," CoFE Discussion Paper 06-04, Center of Finance and Econometrics, University of Konstanz.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- F30 - International Economics - - International Finance - - - General
- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
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