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Article

Do Liquidity Proxies Based on Daily Prices and Quotes Really Measure Liquidity?

1
Department of Econometrics, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland
2
Department of Operations Research, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland
*
Author to whom correspondence should be addressed.
These authors contributed equally to this work.
Received: 22 May 2020 / Revised: 14 July 2020 / Accepted: 15 July 2020 / Published: 17 July 2020
(This article belongs to the Special Issue Complexity in Economic and Social Systems)
This paper examines whether liquidity proxies based on different daily prices and quotes approximate latent liquidity. We compare percent-cost daily liquidity proxies with liquidity benchmarks as well as with realized variance estimates. Both benchmarks and volatility measures are obtained from high-frequency data. Our results show that liquidity proxies based on high-low-open-close prices are more correlated and display higher mutual information with volatility estimates than with liquidity benchmarks. The only percent-cost proxy that indicates higher dependency with liquidity benchmarks than with volatility estimates is the Closing Quoted Spread based on the last bid and ask quotes within a day. We consider different sampling frequencies for calculating realized variance and liquidity benchmarks, and find that our results are robust to it. View Full-Text
Keywords: liquidity proxy; liquidity benchmark; volatility estimate; correlation coefficient; partial determination; mutual information liquidity proxy; liquidity benchmark; volatility estimate; correlation coefficient; partial determination; mutual information
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MDPI and ACS Style

Będowska-Sójka, B.; Echaust, K. Do Liquidity Proxies Based on Daily Prices and Quotes Really Measure Liquidity? Entropy 2020, 22, 783. https://0-doi-org.brum.beds.ac.uk/10.3390/e22070783

AMA Style

Będowska-Sójka B, Echaust K. Do Liquidity Proxies Based on Daily Prices and Quotes Really Measure Liquidity? Entropy. 2020; 22(7):783. https://0-doi-org.brum.beds.ac.uk/10.3390/e22070783

Chicago/Turabian Style

Będowska-Sójka, Barbara, and Krzysztof Echaust. 2020. "Do Liquidity Proxies Based on Daily Prices and Quotes Really Measure Liquidity?" Entropy 22, no. 7: 783. https://0-doi-org.brum.beds.ac.uk/10.3390/e22070783

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