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On the computation of LOT liquidity measure

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  • Zhao, Wandi
  • Wang, Mingjin

Abstract

Based on an extensive simulation study and a real data analysis, we show that the widely used estimation method of LOT liquidity model, i.e. the Mixed MLE method, is not consistent and the Y-split method should be used instead.

Suggested Citation

  • Zhao, Wandi & Wang, Mingjin, 2015. "On the computation of LOT liquidity measure," Economics Letters, Elsevier, vol. 136(C), pages 76-80.
    • Handle: RePEc:eee:ecolet:v:136:y:2015:i:c:p:76-80
    DOI: 10.1016/j.econlet.2015.08.030
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    References listed on IDEAS

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    1. Hasbrouck, Joel, 2004. "Liquidity in the Futures Pits: Inferring Market Dynamics from Incomplete Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(2), pages 305-326, June.
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    6. Petersen, Mitchell A. & Fialkowski, David, 1994. "Posted versus effective spreads *1: Good prices or bad quotes?," Journal of Financial Economics, Elsevier, vol. 35(3), pages 269-292, June.
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    11. Goyenko, Ruslan Y. & Holden, Craig W. & Trzcinka, Charles A., 2009. "Do liquidity measures measure liquidity?," Journal of Financial Economics, Elsevier, vol. 92(2), pages 153-181, May.
    12. Holden, Craig W., 2009. "New low-frequency spread measures," Journal of Financial Markets, Elsevier, vol. 12(4), pages 778-813, November.
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    Cited by:

    1. Zhao, Wandi & Gao, Yang & Wang, Mingjin, 2022. "Measuring liquidity with return volatility: An analytical approach based on heavy-tailed Censored-GARCH model," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    2. Szymon Stereńczak, 2021. "Minimum tick size reduction and stock liquidity: lessons from the Warsaw Stock Exchange," Bank i Kredyt, Narodowy Bank Polski, vol. 52(6), pages 545-576.

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    More about this item

    Keywords

    Liquidity; LOT model; Estimation; Simulation;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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