Liquidity: Systematic Liquidity, Commonality, and High-Frequency Trading
Document Type
Book Chapter
Publication Title
The Handbook of High Frequency Trading
Abstract
Empirical work investigating commonality in liquidity and systematic liquidity risk utilizes various different estimators of systematic liquidity. This chapter is the first to compare and contrast such estimators. We distinguish two classes of systematic liquidity estimators that both have many followers in the literature: (1) weighted average estimators based on concurrent liquidity shocks and (2) principal components estimators based on both concurrent and past liquidity shocks. Our results show that the simpler weighted average estimators perform at least as well as the more complex principal components estimators. This finding is robust across different evaluation criteria and different underlying liquidity measures.
DOI
https://doi.org/10.1016/B978-0-12-802205-4.00012-9
Publication Date
2-2015
Recommended Citation
Anderson, Richard G.; Binner, James M.; Hagströmer, Björn; and Nilsson, Birger, "Liquidity: Systematic Liquidity, Commonality, and High-Frequency Trading" (2015). Faculty Scholarship. 160.
https://digitalcommons.lindenwood.edu/faculty-research-papers/160