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The night and day of Amihud’s (2002) liquidity measure
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Barardehi, Yashar H., Bernhardt, Dan, Ruchti, Thomas G. and Weidenmier, Marc (2019) The night and day of Amihud’s (2002) liquidity measure. Working Paper. Coventry: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS) (1211). (Unpublished)
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Official URL: https://warwick.ac.uk/fac/soc/economics/research/w...
Abstract
Amihud’s (2002) stock (il)liquidity measure averages the daily ratio of absolute closeto-close return to dollar volume, including overnight returns, while trading volumes come from regular trading hours. Our modified measure addresses this mis-match by using open-to-close returns. It better explains cross-sections of returns, doubling estimated liquidity premia over 1964–2017. Using non-synchronous trading near close as an instrument reveals that overnight returns are primarily information-driven and orthogonal to price impacts of trading. Thus, including them in liquidity proxies magnifies measurement error, understating liquidity premia. Our modification especially matters when applications in finance and accounting render use of intraday data infeasible/undesirable.
Item Type: | Working or Discussion Paper (Working Paper) | ||||||
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Subjects: | H Social Sciences > HG Finance | ||||||
Divisions: | Faculty of Social Sciences > Economics | ||||||
Library of Congress Subject Headings (LCSH): | Liquidity (Economics), Stocks -- Prices, Financial risk management, Bank liquidity | ||||||
Series Name: | Warwick economics research papers series (WERPS) | ||||||
Publisher: | University of Warwick. Department of Economics | ||||||
Place of Publication: | Coventry | ||||||
ISSN: | 0083-7350 | ||||||
Official Date: | July 2019 | ||||||
Dates: |
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Number: | 1211 | ||||||
Institution: | University of Warwick | ||||||
Status: | Not Peer Reviewed | ||||||
Publication Status: | Unpublished | ||||||
Access rights to Published version: | Open Access (Creative Commons) | ||||||
Description: | A later version accepted at Journal of Finance. |
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