Liquidity Jump, Liquidity Diffusion, and Portfolio of Assets with Extreme Liquidity

Qi Deng and Zhong-guo Zhou

Papers from arXiv.org

Abstract: We model a portfolio of crypto assets that does not respond well to multivariate autoregressive models because of discontinuity in conditional covariance matrix and posterior covariance matrix caused by extreme liquidity. We adjust asset-level return and volatility with liquidity to reduce such discontinuity, and restore the effectiveness of a set of liquidity-adjusted VECM-DCC/ADCC-BL models at extreme liquidity. We establish two distinctive yet complementary portfolio liquidity measures: portfolio liquidity jump that quantifies the effect of liquidity adjustment in forecasting the conditional covariance matrix, and portfolio liquidity diffusion that quantifies the effect of liquidity adjustment in estimating the posterior covariance matrix.

Date: 2024-03
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2407.00813 Latest version (application/pdf)

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:arx:papers:2407.00813

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().