Our objective is to study liquidity risk, in particular the so-called “limit order books”, as a by-product of market uncertainties. “Limit order books” describe the existence of different sell and buy prices, which we explain by using different risk aversions of the agents. The risky assets follows a local volatility diffusion governed by a Brownian motion which is uncertain. We use the error t...

This research studies the companies’ effectiveness and performance relationship with stock market liquidity in Tehran Stock Exchange during 2010-2015. Simultaneously, in the study, the three indicators: return on assets, return on investment and Tobin's Q ratio were applied as a measure of the performance and bid-ask spread as a measure of liquidity, bid-ask spread to the stock market. This res...

This paper empirically examines the relation between the expected stock return and the bid-ask spread. Using the same portfolio formation method as in Amihud and Mendelson (1986) but different test methodologies, we do not find any clear reliable relation between the CAPM risk-adjusted return and the relative bid-ask spread. Our empirical results are more consistent with the conclusions of Cons...

This paper addresses several questions surrounding volatility forecasting and its use in the estimation of optimal hedging ratios. Specifically: Are there economic gains by nesting time-series econometric models (GARCH) and dynamic programming models (therefore forecasting volatility several periods out) in the estimation of hedging ratios whilst accounting for volatility in the futures bid–ask...

We examine the determinants of the realized bid-ask spread in the U.S. corporate, municipal and government bond markets for the years 1995 to 1997, based on newly available transactions data. Overall, we find that liquidity is an important determinant of the realized bid-ask spread all three markets. Specifically, in all markets, the realized bid-ask spread decreases in the trading volume. Addi...

this paper studies the relationship between return and the bid-ask spread in tehran stock exchange. the research has been done according to amihud and mendelson’s model (1986). it should be mentioned that portfolio beta and size are added as explanatory variables into the model. the study period is from day 1382 to tir 1389. based on the pooling of cross section and time series data used to est...