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Liquidity Measurement Problems in Fast, Competitive Markets: Expensive and Cheap Solutions

The Journal of finance (New York), 2014-08, Vol.69 (4), p.1747-1785 [Peer Reviewed Journal]

2014 American Finance Association ;2014 The American Finance Association ;Copyright Blackwell Publishers Inc. Aug 2014 ;ISSN: 0022-1082 ;EISSN: 1540-6261 ;DOI: 10.1111/jofi.12127 ;CODEN: JLFIAN

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  • Title:
    Liquidity Measurement Problems in Fast, Competitive Markets: Expensive and Cheap Solutions
  • Author: HOLDEN, CRAIG W. ; JACOBSEN, STACEY
  • Subjects: Bid prices ; Competition ; Competitiveness ; Liquidity ; Market prices ; Measurement ; Measurement techniques ; Nasdaq Composite Index ; Prices ; Securities markets ; Standard error ; Stock exchanges ; Studies ; Trade ; Trade adjustment ; Trade finance
  • Is Part Of: The Journal of finance (New York), 2014-08, Vol.69 (4), p.1747-1785
  • Description: Do fast, competitive markets yield liquidity measurement problems when using the popular Monthly Trade and Quote (MTAQ) database? Yes. MTAQ yields distorted measures of spreads, trade location, and price impact compared with the expensive Daily Trade and Quote (DTAQ) database. These problems are driven by (1) withdrawn quotes, (2) second (versus millisecond) time stamps, and (3) other causes, including canceled quotes. The expensive solution, using DTAQ, is first-best. For financially constrained researchers, the cheap solution—using MTAQ with our new Interpolated Time technique, adjusting for withdrawn quotes, and deleting economically nonsensical states—is second-best. These solutions change research inferences.
  • Publisher: Cambridge: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0022-1082
    EISSN: 1540-6261
    DOI: 10.1111/jofi.12127
    CODEN: JLFIAN
  • Source: Alma/SFX Local Collection
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