HOW DO YOU CAPTURE LIQUIDITY? A REVIEW OF THE LITERATURE ON LOW‐FREQUENCY STOCK LIQUIDITY

Huong Le and Andros Gregoriou

Journal of Economic Surveys, 2020, vol. 34, issue 5, 1170-1186

Abstract: Researchers have various ways to measure liquidity but most of them come with both merits and demerits. This study provides a literature review of low‐frequency liquidity measures with a primary focus on liquidity measurement as well as its implication on asset pricing. Based on the dimension it captures, a range of existing low‐frequency measures are divided into four categories of liquidity proxies including transaction cost, volume, price impact, and multidimension‐based measures. We review some well‐established liquidity proxies, a new bid–ask spread estimator and price impact ratios proposed recently. Finally, we discuss how good low‐frequency liquidity measures are at capturing standard liquidity benchmarks, which are constructed from high‐frequency intraday data.

Date: 2020
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