Liquidity Horseraces

When you conduct a liquidity study, which liquidity measure should you use?

Browsing through the literature, you will find hundreds of liquidity measures proposed and utilized by previous studies. This is because liquidity is multifaceted, and each indicator focuses only on a certain attribute of liquidity.

Faced with an enormous menu of liquidity proxies, do you select the most widely used or the easiest to compute?

To guide researchers in their selection, liquidity horseraces provide the reference point. These extensive exercises compare the performance of existing low frequency liquidity proxies, in particularly their correlations with intraday benchmarks, thus saving researchers enormous computational time and high subscription cost for extracting microstructure data.

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