On the Usefulness of Intraday Price Ranges to Gauge Liquidity in Cap-Based Portfolios

37 Pages Posted: 17 Jul 2013 Last revised: 23 Jan 2016

See all articles by Paolo Mazza

Paolo Mazza

IESEG School of Management; LEM CNRS 9221

Mikael Petitjean

Université Polytechnique Hauts-de-France; Catholic University of Louvain (UCL) - Louvain Finance (LFIN)

Date Written: December 24, 2015

Abstract

We investigate how informative is price dynamics to estimate contemporaneous intraday liquidity on Euronext for three market capitalization classes: small, mid, and large caps. Liquidity is measured by a comprehensive set of both book-based and trade-based proxies. Price dynamics is captured by studying price movements between high, low, opening, and closing prices. While controlling for trading activity and realized volatility, we estimate the relation between liquidity and price movements by applying OLS with clustered standard errors, robust and median regression techniques. We show that liquidity and price dynamics are closely related. For example, the intensity in the price discovery process and the level of (relative) price uncertainty are clearly associated with lower liquidity. Easy-to-observe price movements are found to be particularly useful when it comes to efficiently evaluating the level of liquidity on the stock market.

Keywords: Liquidity, Price Dynamics, Intraday, Panel

JEL Classification: G10, G14

Suggested Citation

Mazza, Paolo and Petitjean, Mikael, On the Usefulness of Intraday Price Ranges to Gauge Liquidity in Cap-Based Portfolios (December 24, 2015). Economic Modelling, Vol. 54, 2016, Available at SSRN: https://ssrn.com/abstract=2294444 or http://dx.doi.org/10.2139/ssrn.2294444

Paolo Mazza (Contact Author)

IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Lille, 59 59000
France

HOME PAGE: http://https://sites.google.com/site/paolomazzaphd/

LEM CNRS 9221 ( email )

Mikael Petitjean

Université Polytechnique Hauts-de-France ( email )

IAE Valenciennes
Rue Emile Loubat
Famars, Hauts-de-France 59300
France

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

Voie du Roman Pays 34
Louvain-La-Neuve, 1348
Belgium

HOME PAGE: http://uclouvain.be/mikael.petitjean

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