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Trade-time based measures of liquidity
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Barardehi, Yashar H., Bernhardt, Dan and Davies, Ryan J. (2018) Trade-time based measures of liquidity. Review of Financial Studies . hhy012. doi:10.1093/rfs/hhy012 (In Press)
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Official URL: https://doi.org/10.1093/rfs/hhy012
Abstract
Dramatic microstructure changes in equity markets have made standard liquidity measures less accurate proxies for trading costs. We develop trade-time liquidity measures that reflect per-dollar price impacts of fixed-dollar volumes. Our measures better capture institutional trading costs and better explain the cross-section of returns than do standard measures, especially in recent years. Despite improvements in measures of market quality, expected trading costs have explanatory power for the cross-section of expected returns: we obtain monthly liquidity premium estimates of 5.3 bp for expected returns and 2.4 bp for risk-adjusted returns. Estimated premiums rise after the financial crisis and remain high thereafter.
| Item Type: | Journal Article | |||||||||
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| Subjects: | H Social Sciences > HG Finance | |||||||||
| Divisions: | Faculty of Social Sciences > Economics | |||||||||
| Library of Congress Subject Headings (LCSH): | Liquidity (Economics) -- Mathematical models, Stock exchanges | |||||||||
| Journal or Publication Title: | Review of Financial Studies | |||||||||
| Publisher: | Oxford University Press | |||||||||
| ISSN: | 0893-9454 | |||||||||
| Official Date: | 21 March 2018 | |||||||||
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| Date of first compliant deposit: | 25 July 2018 | |||||||||
| Article Number: | hhy012 | |||||||||
| DOI: | 10.1093/rfs/hhy012 | |||||||||
| Status: | Peer Reviewed | |||||||||
| Publication Status: | In Press | |||||||||
| Access rights to Published version: | Restricted or Subscription Access | |||||||||
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