Measuring market liquidity: an introductory survey

Alexandros Gabrielsen, Massimiliano Marzo and Paolo Zagaglia

MPRA Paper from University Library of Munich, Germany

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.

Keywords: market microstructure; liquidity risk; frictions; transaction costs (search for similar items in EconPapers)
JEL-codes: G1 G10 G12 (search for similar items in EconPapers)
Date: 2011-12-13
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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https://mpra.ub.uni-muenchen.de/35829/1/MPRA_paper_35829.pdf original 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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