Tackling Boundary Effects in Nonparametric Estimation of Intra-Day Liquidity Measures

Joachim Grammig, Reinhard Hujer and Stefan Kokot
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Joachim Grammig: Center for Operations Research and Econometrics
Reinhard Hujer: Johann Wolfgang Goethe-University
Stefan Kokot: Johann Wolfgang Goethe-University

Computational Statistics, 2002, vol. 17, issue 2, No 6, 233-249

Abstract: Summary We investigate methods to estimate intra-day liquidity measures which take into account boundary bias problems affecting the open and closing trading period. In a simulation study we demonstrate the severity of boundary effects when using standard kernel approaches and find that local linear as well as variable kernel estimators offer a much improved performance. In an empirical application using financial transactions data our alternative estimators are able to detect the striking asymmetry between the open and close of the New York stock exchange trading process, while standard kernel smoothers fail to do so.

Keywords: Liquidity; nonparametric estimation; boundary effects; financial transactions data; local linear estimation; variable kernel methods (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1007/s001800200104

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