What Are the Best Liquidity Proxies for Global Research?

Abstract:     
We examine a relatively new global intraday dataset, Thomson Reuters Tick History (TRTH). We find that TRTH can match a relatively high percentage of Datastream stock-years. We find that TRTH intraday data and Bloomberg intraday data have relative small differences and are highly correlated. Using TRTH data, we compare liquidity proxies constructed from low-frequency (daily) stock data to liquidity benchmarks computed from high-frequency (intraday) data for 25,582 firms on 43 exchanges around the world on three performance dimensions: average cross-sectional correlation with the benchmarks, portfolio correlations with the benchmarks, and prediction accuracy. We find that a new proxy, FHT, strongly dominates prior percent cost proxies. It is highly correlated with four percent-cost benchmarks: percent effective spread, percent quoted spread, percent realized spread, and percent price impact. It also captures the level of percent effective spread and percent quoted spread. We find that the best cost-per-volume proxies are FHT Impact, LOT Mixed Impact, Zeros Impact, and Amihud. All four are highly correlated with the cost-per-volume benchmark lambda, but do not capture the level of lambda.

Number of Pages in PDF File: 36

Keywords: Global, Liquidity, transaction costs, effective spread, price impact

JEL Classification: C15, G12, G20

working papers series