Do liquidity measures measure liquidity?

Ruslan Y. Goyenko, Craig W. Holden and Charles Trzcinka

Journal of Financial Economics, 2009, vol. 92, issue 2, 153-181

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.

Keywords: Liquidity; Transaction; costs; Effective; spread; Price; impact; Asset; pricing (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (592)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-405X(09)00009-9
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:92:y:2009:i:2:p:153-181

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().