Measuring the Liquidity Part of Volume
Darolles, Serge; Le Fol, Gaëlle; Mero, Gulten (2015), Measuring the Liquidity Part of Volume, Journal of Banking and Finance, 50, p. 92–105. 10.1016/j.jbankfin.2014.09.007
Type
Article accepté pour publication ou publiéDate
2015Journal name
Journal of Banking and FinanceVolume
50Publisher
Elsevier
Pages
92–105
Publication identifier
Metadata
Show full item recordAuthor(s)
Darolles, SergeDauphine Recherches en Management [DRM]
Le Fol, Gaëlle
Dauphine Recherches en Management [DRM]
Mero, Gulten
Abstract (EN)
Based on the concept that the presence of liquidity frictions can increase the daily traded volume, we develop an extended version of the mixture of distribution hypothesis model (MDH) along the lines of Tauchen and Pitts (1983) to measure the liquidity portion of volume. Our approach relies on a structural definition of liquidity frictions arising from the theoretical framework of Grossman and Miller (1988), which explains how liquidity shocks affect the way in which information is incorporated into daily trading characteristics. In addition, we propose an econometric setup exploiting the volatility–volume relationship to filter the liquidity portion of volume and infer the presence of liquidity frictions using daily data. Finally, based on FTSE 100 stocks, we show that the extended MDH model proposed here outperforms that of Andersen (1996) and that the liquidity frictions are priced in the cross-section of stock returns.Subjects / Keywords
Volatility-volume relationship; Mixture of distribution hypothesis; Information-based trading; Liquidity shocks; GMM tests; Liquidity arbitrageRelated items
Showing items related by title and author.
-
Darolles, Serge; Le Fol, Gaëlle; Mero, Gulten (2017) Article accepté pour publication ou publié
-
Darolles, Serge; Le Fol, Gaëlle; Mero, Gulten (2011) Communication / Conférence
-
Darolles, Serge; Le Fol, Gaëlle; Mero, Gulten (2011-05) Communication / Conférence
-
Bialkowski, Jedrzej; Darolles, Serge; Le Fol, Gaëlle (2012) Article accepté pour publication ou publié
-
Darolles, Serge; Le Fol, Gaëlle; Mero, G. (2022) Article accepté pour publication ou publié