How do you capture liquidity? A review of the literature on low‐frequency stock liquidity

Research output: Contribution to journalArticle

Abstract

Researchers have various ways to measure liquidity but most of them come with both merits and demerits. This study provides a literature review of low-frequency liquidity measures with a primary focus on liquidity measurement as well as its implication on asset pricing. Based on the dimension it captures, a range of existing low-frequency measures are divided into four categories of liquidity proxies including transaction cost, volume, price impact, and multidimension-based measures. We review some well-established liquidity proxies, a new bid–ask spread estimator and price impact ratios proposed recently. Finally, we discuss how good low-frequency liquidity measures are at capturing standard liquidity benchmarks, which are constructed from high-frequency intraday data.

Original languageEnglish
JournalJournal of Economic Surveys
DOIs
Publication statusPublished - 13 Jul 2020

Bibliographical note

© 2020 The Authors. Journal of Economic Surveys published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

Keywords

  • Low-frequency liquidity measure
  • Price impact ratio
  • Transaction costs

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