Work

What is the best proxy for liquidity in the presence of extreme illiquidity?

Year: 2020

Type: article

Abstract: This paper aims to indicate the best daily proxy for unobserved liquidity in the presence of extreme movements on the market. We apply copulas to investigate the dependence between benchmarks based on intraday prices and proxies based on daily data. We focus on the tail dependence between both types of measures. Our results show that when the market experiences extreme illiquidity, the Closing Quoted Spread (CQS) based on daily closing bid and ask prices is superior to other percent-cost low-frequency proxies. We find the highest tail dependence coefficients for CQS and either the Percent Effective Spread or the Percent Quoted Spread.

Source: Emerging Markets Review

DOI: 10.1016/j.ememar.2020.100695

Authors: Barbara Będowska-Sójka, Krzysztof Echaust

Institution: Poznań University of Economics and Business

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $1,650

Funder: Narodowe Centrum Nauki