Measuring Stock Market Liquidity with Price and Trading-Impact Indicators

Summary

This report summary frames liquidity as the time or cost required to trade, with dimensions including speed, trading cost, available quantity, and resilience. It introduces several ways to quantify liquidity: Amihud illiquidity, Pastor–Stambaugh gamma, and the LOT Zeros approach for market impact; effective spreads from intraday data; and the Roll and Corwin–Schultz spread estimators using daily price and volume data. These measures capture different aspects of trading conditions and rely on different data frequencies.

The reported comparison finds that US equity liquidity deteriorated sharply during the volatility surrounding the COVID-era market shock, with some indicators reaching levels above those observed during the 2008 crisis. Chinese A-shares also saw greater volatility but were described as remaining relatively liquid. The available text is an abstract rather than the full analysis, so it gives no formulas, sample construction, or detailed statistical evidence. Its conclusions are historical and may not generalize as market conditions or styles change.

Key ideas

• Liquidity reflects the time and cost of completing trades, as well as market depth and resilience.
• The report surveys impact-based measures and spread estimators built from intraday or daily data.
• Different liquidity indicators capture distinct trading frictions and require different data inputs.
• Its historical comparison describes severe US liquidity stress and comparatively stable A-share liquidity during the examined episode.
• The findings rely on past market data and may not hold under different conditions.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.