Realized Illiquidity
Series
School of Finance Working Paper
Type
working paper
Date Issued
2022-11-21
Author(s)
Abstract
We study the theoretical and empirical properties of a simple measure of market illiquidity, namely the realized Amihud, which is defined as the ratio between the realized volatility and trading volume and which refines the popular price impact measure proposed by Amihud (2002). In our model, both price volatility and market liquidity are assumed to follow stochastic processes in continuous time. In this setting, characterized by stochastic volatility and liquidity, we prove that the realized Amihud provides a precise measurement of the inverse of integrated liquidity over fixed-length periods (e.g., a day, a week, a month). We consider a number of alternative econometric specifications, hence highlighting the main dynamic and distributional properties of the realized Amihud, including jumps, clustering, and leverage effects.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Publisher
SoF HSG
Pages
40
Subject(s)
Division(s)
Eprints ID
268042
File(s)![Thumbnail Image]()
open.access
Name
Realized_Illiquidity_ssrn.pdf
Size
1.11 MB
Format
Adobe PDF
Checksum (MD5)
93a35ff304ca56181f64e52d466d1676