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Do liquidity measures measure liquidity?

April 26, 2017liquidity measure measures

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Do liquidity measures measure liquidity?

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Author InfoGoyenko, Ruslan Y. Holden, Craig W. Trzcinka, Charles A. Abstract Given the key role of liquidity in finance research, identifying high quality proxies based on daily (as opposed to intraday) data would permit liquidity to be studied over relatively long timeframes and across many countries. Using new measures and widely employed measures in the literature, we run horseraces of annual and monthly estimates of each measure against liquidity benchmarks. Our benchmarks are effective spread, realized spread, and price impact based on both Trade and Quote (TAQ) and Rule 605 data. We find that the new effective/realized spread measures win the majority of horseraces, while the Amihud [2002. Illiquidity and stock returns: cross-section and time-series effects. Journal of Financial Markets 5, 31-56] measure does well measuring price impact. Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view it first. Information