How to Measure the Liquidity of Cryptocurrencies?

24 Pages Posted: 1 Jan 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: December 13, 2019

Abstract

We use data from cryptocurrency markets to analyze the accuracy of liquidity measures that are calculated from transactions data. We use benchmark measures calculated from high-frequency order book data to evaluate the performance of the transactions-based measures along three dimensions, the time-series correlation with the benchmark measures, the root mean squared and mean absolute error, and the liquidity ranking across three exchanges. The Abdi & Ranaldo (2017) estimator best captures the time series variation in liquidity. It also performs well in the cross-sectional dimension. When it comes to estimating the level of the benchmark measures the Kyle & Obizhaeva (2016) estimator and the Amihud (2002) illiquidity ratio perform best.

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? (December 13, 2019). 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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