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What Are the Best Liquidity Proxies for Global Research?

Author

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  • Kingsley Y. L. Fong
  • Craig W. Holden
  • Charles A. Trzcinka

Abstract

Liquidity plays an important role in global research. We identify high-quality liquidity proxies based on low-frequency (daily) data, which provide 1,000× to 10,000× computational savings compared to computing high-frequency (intraday) liquidity measures. We find that: (i) Closing Percent Quoted Spread is the best monthly percent-cost proxy when available, (ii) Amihud, Closing Percent Quoted Spread Impact, LOT Mixed Impact, High–Low Impact, and FHT Impact are tied as the best monthly cost-per-dollar-volume proxy, (iii) the daily version of Closing Percent Quoted Spread is the best daily percent-cost proxy, and (iv) the daily version of Amihud is the best daily cost-per-dollar-volume proxy.

Suggested Citation

  • Kingsley Y. L. Fong & Craig W. Holden & Charles A. Trzcinka, 2017. "What Are the Best Liquidity Proxies for Global Research?," Review of Finance, European Finance Association, vol. 21(4), pages 1355-1401.
    • Handle: RePEc:oup:revfin:v:21:y:2017:i:4:p:1355-1401.
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    More about this item

    Keywords

    Liquidity; Transaction costs; Effective spread; Price impact;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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