How to Measure the Liquidity of Cryptocurrencies?

43 Pages Posted: 1 Jan 2020 Last revised: 8 Mar 2020

See all articles by Alexander Brauneis

Alexander Brauneis

University of Klagenfurt

Roland Mestel

University of Graz

Ryan Riordan

Queen's University - Smith School of Business

Erik Theissen

University of Mannheim - Finance Area

Date Written: March 5, 2020

Abstract

We show that low-frequency measures of cryptocurrency liquidity perform adequately in describing high-frequency actual liquidity. We calculate benchmark measures from high-frequency order book data and document the performance of low-frequency transactions measures. The Abdi and Ranaldo (2017) estimator outperforms all other measures in the time-series irrespective of the frequency, exchange, benchmark measure, and cryptocurrency. It also performs well during high and low liquidity and volatility periods. When estimating liquidity levels the Kyle and Obizhaeva (2016) estimator and the Amihud (2002) illiquidity ratio outperform. Overall, results suggest that there is not yet a universally best measure but, depending on the application, there are good low-frequency measures.

Keywords: cryptocurrencies, liquidity, horse race

JEL Classification: G12, G14

Suggested Citation

Brauneis, Alexander and Mestel, Roland and Riordan, Ryan and Theissen, Erik, How to Measure the Liquidity of Cryptocurrencies? (March 5, 2020). Available at SSRN: https://ssrn.com/abstract=3503507 or http://dx.doi.org/10.2139/ssrn.3503507

Alexander Brauneis (Contact Author)

University of Klagenfurt ( email )

Universitaetsstrasse 65-67
Klagenfurt, 9020
Austria
+43 463 2700 4022 (Phone)
+43 463 2700 4092 (Fax)

HOME PAGE: http://www.aau.at/fin

Roland Mestel

University of Graz ( email )

Institute of Banking and Finance
Universitaetsstrasse 15/F2
A-8010 Graz
Austria
+43 316 380 7304 (Phone)
+43 316 380 9580 (Fax)

Ryan Riordan

Queen's University - Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Erik Theissen

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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