Estimating liquidity using information on the multivariate trading process

Katarzyna Bień-Barkowska, Ingmar Nolte and Winfried Pohlmeier ()

No 10, Working Papers from Department of Applied Econometrics, Warsaw School of Economics

Abstract: In this paper we model the dynamic multivariate density of discrete bid and ask quote changes and their associated depths. We account for the contempo- raneous relationship between these trading marks by exploiting the concept of copula functions. Thereby we show how to model truncations of the mul- tivariate density in an easy way. A Metropolized-Independence Sampler is applied to draw from the dynamic multivariate density. The samples drawn serve to construct the dynamic density function of the quote slope liquidity measure, which enables us to quantify time varying liquidity risk. We analyze the influence of the decimalization at the NYSE on liquidity.

Keywords: Liquidity; Copula Functions; Trading Process; Decimalization; Metropolized-Independence Sampler (search for similar items in EconPapers)
JEL-codes: C30 F30 G10 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2006-05-22
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Working Paper: Estimating liquidity using information on the multivariate trading process (2006)
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