Measuring market liquidity: An introductory survey

Gabrielsen, Alexandros ; Marzo, Massimiliano ; Zagaglia, Paolo (2011) Measuring market liquidity: An introductory survey. Bologna: Dipartimento di Scienze economiche DSE, p. 39. DOI 10.6092/unibo/amsacta/4216. In: Quaderni - Working Paper DSE (802). ISSN 2282-6483.
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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.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Gabrielsen, Alexandros
Marzo, Massimiliano
Zagaglia, Paolo
Keywords
market microstructure, liquidity risk, frictions, transaction costs
Subjects
ISSN
2282-6483
DOI
Deposit date
30 Mar 2015 13:13
Last modified
28 Oct 2015 14:25
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