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Tackling Boundary Effects in Nonparametric Estimation of Intra-Day Liquidity Measures

Author

Listed:
  • Joachim Grammig

    (Center for Operations Research and Econometrics
    Johann Wolfgang Goethe-University)

  • Reinhard Hujer

    (Johann Wolfgang Goethe-University)

  • Stefan Kokot

    (Johann Wolfgang Goethe-University)

Abstract

Summary We investigate methods to estimate intra-day liquidity measures which take into account boundary bias problems affecting the open and closing trading period. In a simulation study we demonstrate the severity of boundary effects when using standard kernel approaches and find that local linear as well as variable kernel estimators offer a much improved performance. In an empirical application using financial transactions data our alternative estimators are able to detect the striking asymmetry between the open and close of the New York stock exchange trading process, while standard kernel smoothers fail to do so.

Suggested Citation

  • Joachim Grammig & Reinhard Hujer & Stefan Kokot, 2002. "Tackling Boundary Effects in Nonparametric Estimation of Intra-Day Liquidity Measures," Computational Statistics, Springer, vol. 17(2), pages 233-249, July.
    • Handle: RePEc:spr:compst:v:17:y:2002:i:2:d:10.1007_s001800200104
    DOI: 10.1007/s001800200104
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    References listed on IDEAS

    as
    1. Grossman, Sanford J & Miller, Merton H, 1988. " Liquidity and Market Structure," Journal of Finance, American Finance Association, vol. 43(3), pages 617-637, July.
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    5. Gourieroux, Christian & Jasiak, Joanna & Le Fol, Gaelle, 1999. "Intra-day market activity," Journal of Financial Markets, Elsevier, vol. 2(3), pages 193-226, August.
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