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Empirical measures of liquidity — a new approach

Author

Listed:
  • R Adams
  • R Williams
  • E Acar

    (Citibank, NA, Foreign Exchange, Citigroup Centre)

Abstract

It is not just in extreme situations that liquidity becomes an important issue for financial market participants. Many investors and traders, alike, now make an assessment of liquidity as a part of their day-to-day decision-making processes. This paper proposes a new definition of liquidity while investigating its relationship with existing proxies: volume, volatility, number of trades. When applied to a set of foreign exchange data (EBS provided by — Electronic Broking Services), our liquidity score uncovers new stylised facts that have the potential to help participants with execution decisions and, more importantly, enhance their access to the markets.

Suggested Citation

  • R Adams & R Williams & E Acar, 2001. "Empirical measures of liquidity — a new approach," Journal of Asset Management, Palgrave Macmillan, vol. 2(1), pages 75-83, June.
    • Handle: RePEc:pal:assmgt:v:2:y:2001:i:1:d:10.1057_palgrave.jam.2240036
    DOI: 10.1057/palgrave.jam.2240036
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