Order-Book Liquidity Factors for Monthly Stock Selection
Summary
The document summarizes research that derives two liquidity factors from high-frequency order-book data, one associated with buy orders and one with sell orders. The factors are then aggregated to monthly frequency for use in stock selection. It reports that the buy-side factor achieved a mean information coefficient of 6.89%, annualized long-short returns of 26.58%, and a Sharpe ratio of 2.71 in single-factor backtests. The summary says both factors also improved an existing index-enhancement model.
The available text is only an abstract and points to a separate paper for the construction details. It does not explain the factor formulas, sample period, universe, transaction costs, portfolio rules, or validation design. The reported backtest figures therefore cannot be independently assessed from this excerpt, and they should not be treated as evidence of future performance. The sell-side factor’s individual results are not provided.
Key ideas
- The study constructs separate buy-side and sell-side liquidity factors from high-frequency order-book data.
- It converts the factors to monthly frequency for stock selection.
- The summary reports a mean information coefficient, annualized long-short return, and Sharpe ratio for the buy-side factor.
- It says both factors improved an existing index-enhancement model, but provides no detailed methodology in the excerpt.
- Transaction costs, sample design, and out-of-sample validation are not specified in the available text.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.