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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 (2021) The night and day of Amihud's (2002) liquidity measure. The Review of Asset Pricing Studies, 11 (2). pp. 269-308. raaa022. doi:10.1093/rapstu/raaa022

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Official URL: https://doi.org/10.1093/rapstu/raaa022

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Abstract

Amihud’s stock (il)liquidity measure averages daily ratios of the absolute close-to-close return to dollar volume, including overnight returns. Our modified measure uses open-to-close returns matching return and trading volume measurement windows. It is more strongly correlated with trading-cost measures (by 8%–37%) and better explains cross-sections of returns, doubling estimated liquidity premiums. Using nonsynchronous trading near close, we show overnight returns are primarily information driven: including them in Amihud’s proxy for price impacts of trading magnifies measurement error, understating liquidity premiums. Our modification helps wherever Amihud’s measure is required. Our measures are publicly available for 1964–2019 and can be updated.

Item Type: Journal Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Liquidity (Economics), Stocks -- Prices, Assets (Accounting), Capital assets pricing model
Journal or Publication Title: The Review of Asset Pricing Studies
Publisher: Oxford University Press
ISSN: 2045-9920
Official Date: June 2021
Dates:
DateEvent
June 2021Published
1 March 2021Available
11 September 2020Accepted
Volume: 11
Number: 2
Page Range: pp. 269-308
Article Number: raaa022
DOI: 10.1093/rapstu/raaa022
Status: Peer Reviewed
Publication Status: Published
Publisher Statement: This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Asset Pricing Studies following peer review. The version of record Yashar H Barardehi, Dan Bernhardt, Thomas G Ruchti, Marc Weidenmier, The Night and Day of Amihud’s (2002) Liquidity Measure, The Review of Asset Pricing Studies, Volume 11, Issue 2, June 2021, Pages 269–308, https://doi.org/10.1093/rapstu/raaa022, is available online at: https://doi.org/10.1093/rapstu/raaa022
Access rights to Published version: Restricted or Subscription Access
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