The Night and Day of Amihud’s (2002) Liquidity Measure

Yashar H. Barardehi, Dan Bernhardt, Thomas Ruchti and Marc Weidenmier
Additional contact information
Yashar H. Barardehi: Argyros School of Business & Economics, Chapman University
Marc Weidenmier: Argyros School of Business & Economics, Chapman University and NBER.

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Amihud’s (2002) stock (il)liquidity measure averages the daily ratio of absolute closeto-close return to dollar volume, including overnight returns, while trading volumes come from regular trading hours. Our modified measure addresses this mis-match by using open-to-close returns. It better explains cross-sections of returns, doubling estimated liquidity premia over 1964–2017. Using non-synchronous trading near close as an instrument reveals that overnight returns are primarily information-driven and orthogonal to price impacts of trading. Thus, including them in liquidity proxies magnifies measurement error, understating liquidity premia. Our modification especially matters when applications in finance and accounting render use of intraday data infeasible/undesirable.

Date: 2019
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/w ... p_1211_bernhardt.pdf

Related works:
Journal Article: The Night and Day of Amihud’s (2002) Liquidity Measure (2021)
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:wrk:warwec:1211

Access Statistics for this paper

More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash ().