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Estimating liquidity using information on the multivariate trading process

Author

Listed:
  • Katarzyna Bien

    (Warsaw School of Economics)

  • Ingmar Nolte

    (University of Konstanz, CoFE)

  • Winfried Pohlmeier

    (University of Konstanz, CoFE, ZEW)

Abstract
In this paper we model the dynamic multivariate density of discrete bid and ask quote changes and their associated depths. We account for the contempo- raneous relationship between these trading marks by exploiting the concept of copula functions. Thereby we show how to model truncations of the mul- tivariate density in an easy way. A Metropolized-Independence Sampler is applied to draw from the dynamic multivariate density. The samples drawn serve to construct the dynamic density function of the quote slope liquidity measure, which enables us to quantify time varying liquidity risk. We analyze the influence of the decimalization at the NYSE on liquidity.

Suggested Citation

  • Katarzyna Bien & Ingmar Nolte & Winfried Pohlmeier, 2006. "Estimating liquidity using information on the multivariate trading process," Working Papers 10, Department of Applied Econometrics, Warsaw School of Economics.
    • Handle: RePEc:wse:wpaper:10
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Liquidity; Copula Functions; Trading Process; Decimalization; Metropolized-Independence Sampler;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • F30 - International Economics - - International Finance - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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