Realized Illiquidity

Lun, 28/03/2022 - 13:00 / 14:00

403, Viale Romania

Speaker: Demetrio Lacava , Luiss

Abstract:

In this paper, we study the theoretical and empirical properties of a refined and simple measurement of liquidity, namely the realized Amihud, which is defined as the ratio between realized volatility and trading volume. Similarly to stochastic volatility models, the instantaneous liquidity parameter is assumed to vary over time according to a dynamic process in continuous time. In other words, liquidity is stochastic in our setting. We prove that the realized Amihud provides a precise measurement of the inverse of integrated liquidity over periods of fixed length (e.g. a day, a week, or a month). We also consider a number of alternative econometric specifications with the goal of characterizing the main dynamic and distributional properties of stochastic illiquidity.