What Are the Best Liquidity Proxies for Global Research?

Review of Finance 21, 1355-1401, 2017.

66 Pages Posted: 5 Mar 2010 Last revised: 2 Sep 2017

See all articles by Kingsley Y. L. Fong

Kingsley Y. L. Fong

University of New South Wales - School of Banking and Finance; Financial Research Network (FIRN)

Craig W. Holden

Indiana University - Kelley School of Business - Department of Finance

Charles Trzcinka

Indiana University - Kelley School of Business - Department of Finance

Date Written: January 28, 2017

Abstract

Liquidity plays an important role in global research. We identify high quality liquidity proxies based on low-frequency (daily) data, which provide 1,000X to 10,000X computational savings compared to computing high-frequency (intraday) liquidity measures. We find that: (1) Closing Percent Quoted Spread is the best monthly percent-cost proxy when available, (2) Amihud, Closing Percent Quoted Spread Impact, LOT Mixed Impact, High-Low Impact, and FHT Impact are tied as the best monthly cost-per-dollar-volume proxy, (3) the daily version of Closing Percent Quoted Spread is the best daily percent-cost proxy, and (4) the daily version of Amihud is the best daily cost-per-dollar-volume proxy.

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

JEL Classification: C15, G12, G20

Suggested Citation

Fong, Kingsley Y. L. and Holden, Craig W. and Trzcinka, Charles, What Are the Best Liquidity Proxies for Global Research? (January 28, 2017). Review of Finance 21, 1355-1401, 2017.. Available at SSRN: https://ssrn.com/abstract=1558447 or http://dx.doi.org/10.2139/ssrn.1558447

Kingsley Y. L. Fong

University of New South Wales - School of Banking and Finance ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Craig W. Holden

Indiana University - Kelley School of Business - Department of Finance ( email )

Kelley School of Business
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3383 (Phone)
812-855-5875 (Fax)

HOME PAGE: http://www.kelley.iu.edu/cholden

Charles Trzcinka (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

Kelley School of Business
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-9908 (Phone)
812-855-5875 (Fax)

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