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Latent Liquidity: A New Measure of Liquidity, with an Application to Corporate Bonds


Sriketan Mahanti


State Street Global Markets

Amrut J. Nashikkar


New York University (NYU) - Department of Finance

Marti G. Subrahmanyam


New York University - Stern School of Business

George Chacko


Harvard Business School

Gaurav Mallik


State Street Global Markets
November 2006

NYU Working Paper No. FIN-06-024

Abstract:     
We present a new measure of liquidity known as "latent liquidity" and apply it to a unique corporate bond database. Latent liquidity is defined as the weighted average turnover of investors who hold a bond, where the weights are the fractional investor holdings. It can be used to measure liquidity in markets with sparse transactions data. This measure exhibits relationships with bond characteristics similar to those of other trade-based measures. For bonds that trade frequently, our measure has predictive power for both transaction costs and the price impact of trading, over and above trading activity and bond-specific characteristics thought to be related to liquidity.

Number of Pages in PDF File: 54

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Date posted: November 3, 2008  

Suggested Citation

Mahanti, Sriketan, Nashikkar, Amrut J., Subrahmanyam, Marti G., Chacko, George and Mallik, Gaurav, Latent Liquidity: A New Measure of Liquidity, with an Application to Corporate Bonds (November 2006). NYU Working Paper No. FIN-06-024. Available at SSRN: http://ssrn.com/abstract=1293650

Contact Information

Sriketan Mahanti
State Street Global Markets ( email )
One Lincoln Street
Boston, MA 02111-2900
Amrut J. Nashikkar
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
+1-212-998-0718 (Phone)
HOME PAGE: http://pages.stern.nyu.edu/~anashikk
Marti G. Subrahmanyam
New York University - Stern School of Business ( email )
Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)
George Chacko
Harvard Business School ( email )
Boston, MA 02163
United States
617-495-6884 (Phone)
Gaurav Mallik
State Street Global Markets ( email )
One Lincoln Street
Boston, MA 02111-2900
United States
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