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The Night and Day of Amihud’s (2002) Liquidity Measure
[Asset pricing with liquidity risk]

Author

Listed:
  • Yashar H Barardehi
  • Dan Bernhardt
  • Thomas G Ruchti
  • Marc Weidenmier

Abstract

Amihud’s stock (il)liquidity measure averages daily ratios of the absolute close-to-close return to dollar volume, including overnight returns. Our modified measure uses open-to-close returns matching return and trading volume measurement windows. It is more strongly correlated with trading-cost measures (by 8%–37%) and better explains cross-sections of returns, doubling estimated liquidity premiums. Using nonsynchronous trading near close, we show overnight returns are primarily information driven: including them in Amihud’s proxy for price impacts of trading magnifies measurement error, understating liquidity premiums. Our modification helps wherever Amihud’s measure is required. Our measures are publicly available for 1964–2019 and can be updated. (JEL G12, G14)Received June 2, 2020; editorial decision September 11, 2020 by Editor Jeffrey Pontiff.

Suggested Citation

  • Yashar H Barardehi & Dan Bernhardt & Thomas G Ruchti & Marc Weidenmier, 2021. "The Night and Day of Amihud’s (2002) Liquidity Measure [Asset pricing with liquidity risk]," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 11(2), pages 269-308.
    • Handle: RePEc:oup:rasset:v:11:y:2021:i:2:p:269-308.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raaa022
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    Citations

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    Cited by:

    1. Paul, Thomas & Aryoubi, Abdullah & Walther, Thomas, 2025. "Reassessing the Illiquidity-Return Relationship: Evidence from Germany, the UK, and the U.S," International Review of Financial Analysis, Elsevier, vol. 106(C).
    2. Lee, Hsiu-Chuan & Lien, Donald & Sheu, Her-Jiun & Yang, Chung-Jen, 2024. "An extension analysis of Amihud's illiquidity premium: Evidence from the Taiwan stock market," Pacific-Basin Finance Journal, Elsevier, vol. 87(C).
    3. Teplova, Tamara & Sokolova, Tatiana & Kissa, David, 2023. "Revealing stock liquidity determinants by means of explainable AI: The role of ESG before and during the COVID-19 pandemic," Resources Policy, Elsevier, vol. 86(PB).
    4. Sifat, Imtiaz & Zarei, Alireza & Hosseini, Seyedmehdi & Bouri, Elie, 2022. "Interbank liquidity risk transmission to large emerging markets in crisis periods," International Review of Financial Analysis, Elsevier, vol. 82(C).
    5. Zeynep Cobandag Guloglu & Cumhur Ekinci, 2022. "Liquidity measurement: A comparative review of the literature with a focus on high frequency," Journal of Economic Surveys, Wiley Blackwell, vol. 36(1), pages 41-74, February.
    6. Coppola, Anna & Urga, Giovanni & Varaldo, Alessandro, 2025. "Asset class liquidity risk indicators. Timing the risk in the European and US equity and bond markets," Journal of Financial Stability, Elsevier, vol. 76(C).
    7. Ee, Mong Shan & Hasan, Iftekhar & Huang, He, 2022. "Stock liquidity and corporate labor investment," Journal of Corporate Finance, Elsevier, vol. 72(C).
    8. Byrka-Kita, Katarzyna & Czerwiński, Mateusz & Preś-Perepeczo, Agnieszka & Bajerska, Aurelia, 2025. "National board heterogeneity versus firm risk in times of war: Evidence from the Crimean crisis," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    9. Kim, Jinyong & Kim, Yongsik, 2023. "Which stock price component drives the Amihud illiquidity premium?," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    10. Yashar Barardehi & Andrew Bird & Stephen Karolyi & Thomas Ruchti, 2025. "Are Short-Selling Restrictions Effective?," Management Science, INFORMS, vol. 71(5), pages 3829-3851, May.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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