Liquidity and Simulation: A Survey of Liquidity Measures Using TraderEx

31 Pages Posted: 21 Apr 2014

See all articles by Jedediah Baker

Jedediah Baker

Alliant International University - Alliant School of Management

Cornelis A. Los

University of California at Irvine - The Paul Merage School of Business; EMEPS Associates

Date Written: December 12, 2014

Abstract

This paper examines a number of widely used liquidity measures to assess the consistency and reliability of the measures across different liquidity scenarios. A review is conducted of the various measures (based on Gabrielsen, Marzo and Zagaglia, 2011). This paper expands upon their review, by simulating liquidity scenarios using TraderEx software and comparing the sensitivity of the measures to the simulated data. Additionally, empirical data are tested on low and high liquidity assets from the S&P 500 to assess if the differences in empirical data are transferrable (and consistent) with differences in the simulations. Results indicate that the current measures are quite limited due to the inflexibility they exhibit with respect to number of assets, time dependence and time structure dependence. This paper proposes to design new measures for liquidity identification and measurement in simulated environments, which can then be applied to empirical markets, which do not require the rigid assumptions associated with traditional time-series methods.

Keywords: Liquidity, liquidity measurement, market simulation, trading simulation

JEL Classification: C15, C44, C92, D46, D49, D81, G14

Suggested Citation

Baker, Jedediah and Los, Cornelis A., Liquidity and Simulation: A Survey of Liquidity Measures Using TraderEx (December 12, 2014). Available at SSRN: https://ssrn.com/abstract=2373815 or http://dx.doi.org/10.2139/ssrn.2373815

Jedediah Baker

Alliant International University - Alliant School of Management ( email )

10455 Pomerado Road
Scripps Ranch, CA 92131
United States

Cornelis A. Los (Contact Author)

University of California at Irvine - The Paul Merage School of Business ( email )

SB1
Irvine, CA 92697-3125
United States

HOME PAGE: http://merage.uci.edu/research-faculty/faculty-directory/Cornelis-Los.html

EMEPS Associates ( email )

Escondido, CA 92029
United States
760-294-0255 (Phone)
858-635-4783 (Fax)

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