Alternative Equity Liquidity Measures and Funding Liquidity
Summary
The document surveys ways to measure stock-market liquidity beyond the Amihud measure and bid-ask spreads. It groups candidate measures into spread proxies and price-impact proxies, naming Effective Tick, Holden, LOT variants, Roll, Gibbs, zero-return measures, Pastor–Stambaugh, and the Amivest Liquidity Ratio. It notes that some measures can be adapted to estimate price impact, reflecting the close relationship between price impact and liquidity.
For research on flight to liquidity or quality, the response also points to theoretical work connecting illiquidity with funding conditions, including repos and leverage, and to a model linking market liquidity with funding liquidity. These are suggested readings rather than a comparative evaluation: the document provides no formulas, implementation guidance, or empirical results about which measure performs best. Researchers should consult the cited studies to assess assumptions and suitability for their data and research question.
Key ideas
- Liquidity can be measured with spread proxies and price-impact proxies.
- The cited alternatives include Effective Tick, Holden, LOT, Roll, Gibbs, zero-return, Pastor–Stambaugh, and Amivest measures.
- Some spread measures can be modified to proxy for price impact.
- Funding conditions such as repos and leverage are relevant to theoretical accounts of illiquidity.
- The document recommends foundational readings but does not compare the measures empirically.
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# Alternative liquidity measures # Alternative liquidity measures I'm going to write the MSc thesis on flight-to-liquidity phenomenon in stock markets and I'm interested in liquidity measures other than Amihud or bid-ask spread. What are some other popular measures of liquidity? ## Answer by Ryogi (score 12) https://quant.stackexchange.com/a/4375 There are several. This list is from Giyenko et al (2008)---in their work they compare all these different measures--- and includes spread proxies and price impact proxies. As for spread proxies: - "Effective Tick" (Holden 2007, Giyenko et al 2008) - "Holden measure" (Holden 2007) - "LOT Y-split" (Giyenko et al 2008) - "Roll measure" (Roll 1984) - "Gibbs measure" (Hasbrouck 2004) - "LOT mixed" (Lesmond et al 1999) - "Zeros" and "Zeroes2" (Lesmond et al 1999) - "Amihud measure" (Amihud 2002) - "Pastor and Stambaugh" (Pastor and Stambaugh 2003) - Amivest Liquidity Ratio Some of these can be interpreted and modified to proxy for price impact. Indeed, any model of price impact is closely linked with liquidity. From a Macro and theoretical perspective, Tirole has something good to say (as always) > Tirole, J. (2011). Illiquidity and all its friends. Journal of Economic Literature 49(2), 287–325. If I remember correctly it established a simple link between the common intuition that Repos, leverage ratios, and other borrowing measures bear relevance to the problem of measuring illiquidity. Specifically on flight to quality (theoretical, but with an empirical application): > Brunnermeier, M. and L. Pedersen (2009). Market liquidity and funding liquidity. Review of Financial Studies 22(6), 2201–2238. Bonus reading: > Brunnermeier, M. (2009). Deciphering the liquidity and credit crunch 2007-2008. Journal of Economic Perspectives 23(1), 77–100.
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