What Are the Best Liquidity Proxies for Global Research?

Kingsley Y. L. Fong, Craig W. Holden and Charles Trzcinka

Review of Finance, 2017, vol. 21, issue 4, 1355-1401

Abstract: Liquidity plays an important role in global research. We identify high-quality liquidity proxies based on low-frequency (daily) data, which provide 1,000× to 10,000× computational savings compared to computing high-frequency (intraday) liquidity measures. We find that: (i) Closing Percent Quoted Spread is the best monthly percent-cost proxy when available, (ii) Amihud, Closing Percent Quoted Spread Impact, LOT Mixed Impact, High–Low Impact, and FHT Impact are tied as the best monthly cost-per-dollar-volume proxy, (iii) the daily version of Closing Percent Quoted Spread is the best daily percent-cost proxy, and (iv) the daily version of Amihud is the best daily cost-per-dollar-volume proxy.

Keywords: Liquidity; Transaction costs; Effective spread; Price impact (search for similar items in EconPapers)
JEL-codes: C15 G12 G20 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (206)

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