How large is liquidity risk in an automated auction market?
We introduce a new empirical methodology that takes account of liquidity risk in a Value-at-Risk framework, and quantify liquidity risk premiums for portfolios and individual stocks traded on the automated auction market Xetra which operates at various European exchanges. When constructing liquidity risk measures we allow for the potential price impact incurred by the liquidation of a portfolio. We study the sensitivity of liquidity risk towards portfolio size and VaR time horizon, and interpret its diurnal variation in the light of market microstructure theory.
(This abstract was borrowed from another version of this item.)
Volume (Year): 30 (2006)
Issue (Month): 4 (January)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/econometrics/journal/181/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- GIOT, Pierre, 1999. "Time transformations, intraday data and volatility models," CORE Discussion Papers 1999044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Ajay Subramanian & Robert A. Jarrow, 2001. "The Liquidity Discount," Mathematical Finance, Wiley Blackwell, vol. 11(4), pages 447-474.
- Gourieroux, Christian & Jasiak, Joanna & Le Fol, Gaelle, 1999.
"Intra-day market activity,"
Journal of Financial Markets,
Elsevier, vol. 2(3), pages 193-226, August.
- A. Durre & H. Beltran & P. Giot, 2005. "Volatility regimes and the provision of liquidity in order book markets," Post-Print hal-00268757, HAL.
- Martin Martens & Yuan-Chen Chang & Stephen J. Taylor, 2002. "A Comparison of Seasonal Adjustment Methods When Forecasting Intraday Volatility," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(2), pages 283-299.
- Anil Bangia & Francis X. Diebold & Til Schuermann & John D. Stroughair, 1998.
"Modeling Liquidity Risk, With Implications for Traditional Market Risk Measurement and Management,"
Center for Financial Institutions Working Papers
99-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Anil Bangia & Francis X. Diebold & Til Schuermann & John D. Stroughair, 1998. "Modeling Liquidity Risk With Implications for Traditional Market Risk Measurement and Management," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-062, New York University, Leonard N. Stern School of Business-.
- Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, vol. 66(5), pages 1127-1162, September.
- Helena, BELTRAN & Alain, DURRE & Pierre, GIOT, 2004.
"Volatility regimes and the provisions of liquidity in order book markets,"
Discussion Papers (ECON - Département des Sciences Economiques)
2005015, Université catholique de Louvain, Département des Sciences Economiques.
- BELTRAN, Helena & DURRE, Alain & GIOT, Pierre, 2005. "Volatility regimes and the provision of liquidity in order book markets," CORE Discussion Papers 2005012, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Magdalena E. Sokalska & Ananda Chanda & Robert F. Engle, 2005. "High Frequency Multiplicative Component Garch," Computing in Economics and Finance 2005 409, Society for Computational Economics.
- Handa, Puneet & Schwartz, Robert A, 1996. " Limit Order Trading," Journal of Finance, American Finance Association, vol. 51(5), pages 1835-61, December.
- A. Durre & H. Beltran & P. Giot, 2005. "Volatility regimes and the provision of liquidity in order book markets," Post-Print hal-00268760, HAL.
- Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-89, December.
When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:30:y:2006:i:4:p:867-887. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.