Measuring market liquidity: An introductory survey

Alexandros Gabrielsen, Massimiliano Marzo and Paolo Zagaglia

Papers from arXiv.org

Abstract: Asset liquidity in modern financial markets is a key but elusive concept. A market is often said to be liquid when the prevailing structure of transactions provides a prompt and secure link between the demand and supply of assets, thus delivering low costs of transaction. Providing a rigorous and empirically relevant definition of market liquidity has, however, provided to be a difficult task. This paper provides a critical review of the frameworks currently available for modelling and estimating the market liquidity of assets. We consider definitions that stress the role of the bid-ask spread and the estimation of its components that arise from alternative sources of market friction. In this case, intra-daily measures of liquidity appear relevant for capturing the core features of a market, and for their ability to describe the arrival of new information to market participants.

Date: 2011-12
New Economics Papers: this item is included in nep-mon and nep-mst
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Citations: View citations in EconPapers (31)

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http://arxiv.org/pdf/1112.6169 Latest version (application/pdf)

Related works:
Working Paper: Measuring Market Liquidity: An Introductory Survey (2012)
Working Paper: Measuring market liquidity: An introductory survey (2011)
Working Paper: Measuring market liquidity: an introductory survey (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1112.6169

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