Measuring Liquidity in Financial Markets

Tonny Lybek and Abdourahmane Sarr

No 2002/232, IMF Working Papers from International Monetary Fund

Abstract: This paper provides an overview of indicators that can be used to illustrate and analyze liquidity developments in financial markets. The measures include bid-ask spreads, turnover ratios, and price impact measures. They gauge different aspects of market liquidity, namely tightness (costs), immediacy, depth, breadth, and resiliency. These measures are applied in selected foreign exchange, money, and capital markets to illustrate their operational usefulness. A number of measures must be considered because there is no single theoretically correct and universally accepted measure to determine a market's degree of liquidity and because market-specific factors and peculiarities must be considered.

Keywords: WP; exchange rate; money market; price change; market liquidity (search for similar items in EconPapers)
Pages: 63
Date: 2002-12-01
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Citations: View citations in EconPapers (118)

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