Liquidity Premium, Liquidity-Adjusted Return and Volatility, and Extreme Liquidity

Qi Deng and Zhong-guo Zhou

Papers from arXiv.org

Abstract: We establish innovative liquidity premium measures, and construct liquidity-adjusted return and volatility to model assets with extreme liquidity, represented by a portfolio of selected crypto assets, and upon which we develop a set of liquidity-adjusted ARMA-GARCH/EGARCH models. We demonstrate that these models produce superior predictability at extreme liquidity to their traditional counterparts. We provide empirical support by comparing the performances of a series of Mean Variance portfolios.

Date: 2023-06, Revised 2024-02
New Economics Papers: this item is included in nep-fmk and nep-rmg
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