Convenient Liquidity Measure for Financial Markets

14 Pages Posted: 29 Jan 2014 Last revised: 14 Aug 2014

See all articles by Oleh Danyliv

Oleh Danyliv

Fidessa Group plc

Bruce Bland

Fidessa Group, London

Daniel Nicholass

Fidessa Group, London

Date Written: January 27, 2014

Abstract

A liquidity measure based on consideration and price range is proposed. Initially defined for daily data, Liquidity Index (LIX) can also be estimated via intraday data by using a time scaling mechanism. The link between LIX and the liquidity measure based on weighted average bid-ask spread is established.

Using this liquidity measure, an elementary liquidity algebra is possible: from the estimation of the execution cost, the liquidity of a basket of instruments is obtained. A formula for the liquidity of an ETF, from the liquidity of its constituencies and the liquidity of ETF shares, is derived.

Keywords: measuring liquidity, portfolio liquidity

JEL Classification: G11, G12

Suggested Citation

Danyliv, Oleh and Bland, Bruce and Nicholass, Daniel, Convenient Liquidity Measure for Financial Markets (January 27, 2014). Available at SSRN: https://ssrn.com/abstract=2385914 or http://dx.doi.org/10.2139/ssrn.2385914

Oleh Danyliv (Contact Author)

Fidessa Group plc ( email )

One Old Jewry
London, EC2R 8DN
United Kingdom

Bruce Bland

Fidessa Group, London ( email )

One Old Jewry
London, EC2R 8DN
United Kingdom

Daniel Nicholass

Fidessa Group, London ( email )

One Old Jewry
London, EC2R 8DN
United Kingdom

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