Liquidity, the ease of trading an asset, strongly varies between di erent sizes of stock positions. We analyze this aspect using the Xetra Liquidity Measure (XLM), which calculates daily, weighted spread for impatient traders transacting against the limit order book. For this measure, we have data for 160 German stocks over 5.5 years, which allows us a representative analysis of the order-size ...

This paper studies liquidity and volatility commonality in the Canadian stock market. We show that five various liquidity measures display strong evidence of commonality at both market-wide and industry specific levels. Our findings extend the results of previous studies in liquidity commonality, and show that even after controlling for individual determinants of liquidity such as price, volume...

The Determinants of Liquidity in the Corporate Bond Markets: An Application of Latent Liquidity We present a new measure of liquidity known as “latent liquidity” and apply it to a unique corporate bond database to discern the characteristics of bonds that lead to higher liquidity. Unlike conventional measures of liquidity, such as trading volume and bid-ask spreads, our measure of liquidity doe...

a r t i c l e i n f o We examine the role of liquidity risk, both as a stock characteristic as well as systematic liquidity risk, in UK mutual fund performance for the first time. We find that on average UK mutual funds are tilted towards liquid stocks (except for small stock funds as might be expected) but that, counter-intuitively, liquidity rather than illiquidity, as a stock characteristic ...

The Determinants of Liquidity in the Corporate Bond Markets: An Application of Latent Liquidity We present a new measure of liquidity known as “latent liquidity” and apply it to a unique corporate bond database to discern the characteristics of bonds that lead to higher liquidity. Unlike conventional measures of liquidity, such as trading volume and bid-ask spreads, our measure of liquidity doe...

We provide a model that links a security’s market liquidity — i.e., the ease of trading it — and traders’ funding liquidity — i.e., their availability of funds. Traders provide market liquidity and their ability to do so depends on their funding, that is, their capital and the margins charged by their financiers. In times of crisis, reductions in market liquidity and funding liquidity are mutua...

On the basis of a liquidity management model, liquidity risks, defined as the probability of payment failures in a real-time gross settlement (RTGS) payment system, may either stem from liquidity management inefficiencies or insufficient cash balances. I will show that penalties charged on the amount of payment failures minimise liquidity risks without interfering with the bank’s technology pre...

Liquidity is generally viewed as a positive characteristic of a traded asset in positive net supply. Ceteris paribus, the higher liquidity of a given asset should be reflected in a higher price or a lower required return. This issue is of particular interest if the same asset is traded in multiple markets. In this setting, apart from the effect of liquidity on pricing in each market, there is t...

This paper discusses how to introduce liquidity into the well known mean-variance framework of portfolio selection using a representative sample of Spanish equity portfolios. Either by estimating mean-variance liquidity constrained frontiers or directly estimating optimal portfolios for alternative levels of risk aversion and preference for liquidity, we obtain strong effects of liquidity on op...

Given the cross-sectional and temporal variation in their liquidity, emerging equity markets provide an ideal setting to examine the impact of liquidity on expected returns. Our main liquidity measure is a transformation of the proportion of zero daily firm returns, averaged over the month. We find that it significantly predicts future returns, whereas alternative measures such as turnover do n...