Liquidity Measurement Based on Bid-Ask Spread, Trading Frequency, and Liquidity Ratio: The Use of GARCH Model on Jakarta Stock Exchange (JSX)

Erie Febrian () and Aldrin Herwany ()
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Erie Febrian: Finance & Risk Management Study Group (FRMSG) FE UNPAD

No 200910, Working Papers in Economics and Development Studies (WoPEDS) from Department of Economics, Padjadjaran University

Abstract: This paper attempts to investigate and clarify previous studies on market liquidity measurement, which involve Bid-Ask Spread, Trading Frequency, and Liquidity Ratio variables. To strengthen our findings, we employ Volatility Models of ARCH and GARCH, as well as JSX daily, weekly, and monthly time series data. Our findings reveal that the observed variables are able to explain volatility magnitude of JSX in terms of liquidity. Volatility model incorporating Trading Frequency variable with monthly data is found the most suitable model for measuring liquidity of JSX.

Keywords: Bid-Ask Spread; Trading Frequency; Liquidity Ratio; and ARCH/GARCH (search for similar items in EconPapers)
JEL-codes: G0 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2009-09, Revised 2009-09
New Economics Papers: this item is included in nep-mst
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Working Paper: Liquidity Measurement Based on Bid-Ask Spread, Trading Frequency, and Liquidity Ratio: The Use of GARCH Model on Jakarta Stock Exchange (JSX) (2010)
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