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Liquidity Measurement Based on Bid-Ask Spread, Trading Frequency, and Liquidity Ratio: The Use of GARCH Model on Jakarta Stock Exchange (JSX)

Author

Listed:
  • Erie Febrian

    (Finance & Risk Management Study Group (FRMSG) FE UNPAD)

  • Aldrin Herwany

    (Research Division, Laboratory of Management FE UNPAD)

Abstract

This paper attempts to investigate and clarify previous studies on market liquidity measurement, which involve Bid-Ask Spread, Trading Frequency, and Liquidity Ratio variables. To strengthen our findings, we employ Volatility Models of ARCH and GARCH, as well as JSX daily, weekly, and monthly time series data. Our findings reveal that the observed variables are able to explain volatility magnitude of JSX in terms of liquidity. Volatility model incorporating Trading Frequency variable with monthly data is found the most suitable model for measuring liquidity of JSX.

Suggested Citation

  • Erie Febrian & Aldrin Herwany, 2009. "Liquidity Measurement Based on Bid-Ask Spread, Trading Frequency, and Liquidity Ratio: The Use of GARCH Model on Jakarta Stock Exchange (JSX)," Working Papers in Economics and Development Studies (WoPEDS) 200910, Department of Economics, Padjadjaran University, revised Sep 2009.
    • Handle: RePEc:unp:wpaper:200910
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    References listed on IDEAS

    as
    1. Elena Andreou, 2004. "The Impact of Sampling Frequency and Volatility Estimators on Change-Point Tests," Journal of Financial Econometrics, Oxford University Press, vol. 2(2), pages 290-318.
    2. Chris Brooks, 2005. "Autoregressive Conditional Kurtosis," Journal of Financial Econometrics, Oxford University Press, vol. 3(3), pages 399-421.
    3. Michael Cooper & Huseyin Gulen, 2006. "Is Time-Series-Based Predictability Evident in Real Time?," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1263-1292, May.
    4. Ané, 2005. "Do Power GARCH models really improve value-at-risk forecasts?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(3), pages 337-358, September.
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    Cited by:

    1. Boško Živković & Jelena Minović, 2010. "Illiquidity of Frontier Financial Market: Case of Serbia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(3), pages 349-367, September.

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    More about this item

    Keywords

    Bid-Ask Spread; Trading Frequency; Liquidity Ratio; and ARCH/GARCH;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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