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
Date Written: January 28, 2017
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: Suggested Citation