Multi-scale Representation of High Frequency Market Liquidity
We introduce an event based framework of directional changes and overshoots to map continuous financial data into the so-called Intrinsic Network - a state based discretisation of intrinsically dissected time series. Defining a method for state contraction of Intrinsic Network, we show that it has a consistent hierarchical structure that allows for multi-scale analysis of financial data. We define an information theoretic measurement termed Liquidity that characterises the unlikeliness of price trajectories and argue that the new metric has the ability to detect and predict stress in financial markets. We show empirical examples within the Foreign Exchange market where the new measure not only quantifies liquidity but also acts as an early warning signal.
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- Alexandros Gabrielsen & Massimiliano Marzo & Paolo Zagaglia, 2012.
"Measuring Market Liquidity: An Introductory Survey,"
Working Paper Series
02_12, The Rimini Centre for Economic Analysis.
- Gabrielsen, Alexandros & Marzo, Massimiliano & Zagaglia, Paolo, 2011. "Measuring market liquidity: an introductory survey," MPRA Paper 35829, University Library of Munich, Germany.
- A. Gabrielsen & M. Marzo & P. Zagaglia, 2011. "Measuring market liquidity: An introductory survey," Working Papers wp802, Dipartimento Scienze Economiche, Universita' di Bologna.
- Alexandros Gabrielsen & Massimiliano Marzo & Paolo Zagaglia, 2011. "Measuring market liquidity: An introductory survey," Papers 1112.6169, arXiv.org.
- J. B. Glattfelder & A. Dupuis & R. B. Olsen, 2008.
"Patterns in high-frequency FX data: Discovery of 12 empirical scaling laws,"
0809.1040, arXiv.org, revised Jun 2010.
- J. B. Glattfelder & A. Dupuis & R. B. Olsen, 2010. "Patterns in high-frequency FX data: discovery of 12 empirical scaling laws," Quantitative Finance, Taylor & Francis Journals, vol. 11(4), pages 599-614.
- Galluccio, S. & Caldarelli, G. & Marsili, M. & Zhang, Y.-C., 1997. "Scaling in currency exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 245(3), pages 423-436.
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