Questions tagged [liquidity]

Liquidity is easy to define qualitatively (the easiness to buy or sell an asset), but difficult to measure.

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54 views

Why is the liquidity of ATM stock options often relatively low even if the underlying security is being traded in large quantities

I am currently trying to learn more about options trading and option strategies. One thing I have noticed recently is that for a lof of stocks I look up on yahoo finance often a very low open interest ...
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48 views

FX convertability modelling: have FX markets ever closed down?

I am working on modelling the risk that a bank's cash in one currency could not be converted into another currencies. This convertability risk has liquidity implacations for the asset liabilities ...
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62 views

liquidity of a portfolio of options

In the asset management industry, many reports contain liquidity metrics such as the no. of days to liquidate 95% of a position, based on a certain participation rate. If that position is a stock or a ...
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80 views

Implied volatility of hypothetical options market

I am attempting to create a volatility surface for a US electricity market that has a liquid futures market but nearly non-existent options market (<5 trades per month across all strikes and ...
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51 views

Estimating risk aversion from option bid-ask spreads

Is it possible to use bid-ask spreads on contracts from a specific tenor to estimate risk aversion and use it to transform risk-neutral density into real-world density?
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140 views

How to make a trading universe of liquid futures contracts

I am forming a universe of liquid futures/liquid FX forwards. I want a list of all liquid contracts, the key word being liquid. This is for an academic project, but you could imagine liquid being ...
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47 views

Stressing liquidity (time to liquidate) of a long only equity fund using participation rate or bid ask

My company is looking to launch a new long only global equity fund. The product committee wishes to see a risk analysis covering various risks, including liquidity. The main measure is time to ...
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118 views

How does liquidity affect trading costs?

I am aware that the liquidity of a stock directly affects the trading costs associated with it. I am however unsure about the direction of this effect, since I hypothesize two counteracting forces: ...
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231 views

International Baccalaureate - Balance Sheet Format [closed]

I would like to transform Tesla's balance sheet (https://www.nasdaq.com/symbol/tsla/financials?query=balance-sheet) into the IB-balance sheet format (see below). In the current assets section, is it,...
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74 views

Measuring liquiduity of a portoflio of bonds

I'm currently looking into applying bond liquidity out of curiousity. The Method i'm currently using is the Barclays LCS score (live.barcap.com/publiccp/RSR/nyfipubs/barcap-email-mkting/qps/LCS_In-...
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53 views

CDS pricing using intensity models incorporating liquidity

I want to price a CDS using an intensity based model, but I want to account for liquidity as well. General model: The default time $\tau$ is the first jump time of a cox process, and the survival ...
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253 views

Using option pricing methods to model real asset liquidity

Liquidity risk (in the sense of asset exit risk) is warranted on investments that may not be easily divested at the going market or fair-value price. I am looking at a portfolio of private assets ...
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160 views

Fama-Macbeth with Liquidity Sorted Portfolios

I'm currently working on a paper in which I'm trying to see whether the liquidity premium is an observable phenomena when taken into the context of computer games. From my research online I've found ...
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206 views

what is liquidation value in kyle (1985) model

I am thoroughly reading my first academic literature and I have found myself overwhelmed by terms that have been generalised in my studies. It is from "Continuous Auction and Insider Trading" by ...
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97 views

Application of Extreme Value Theory in banking liquidity risk analysis

The regulator forces banks to assess their (intraday) liquidity risk in normal and stressed conditions see e.g. BCBS 144 principle 9. To me this sounds pretty much like a possible application of EVT ...
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141 views

Bond liquidity: why do I observe constant bid-ask spreads?

I hope you can help me. I want to use the bid-ask spread of prices for 10yr treasury notes as a proxy for bond market liquidity. I got monthly aggregated bond price data (for yrs 1999-2013) from ...
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181 views

What makes open-outcry preferable to electronic trading and what are its consequences?

I recently visited the trading floor of CBOE where especially the pits of SPX and VIX are relatively crowded and open outcry is still performed. I was surprised to hear that the traded volume is non ...
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172 views

Cost of liquidation

In the text book on Risk Management by John Hull, The cost of liquidation is defined as one half of spread between bid price and ask price. Investopedia justifies the one half factor by saying that ...
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463 views

Basis swap pricing dynamics

The existence of basis spreads leads to that e.g. a 6M forward rate has a different price than two after each other following 3M forward rates. This due to that the 6M forward rate has a higher credit ...
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147 views

Bond Valuation and liquidity

Assuming the market is perfect liquid, the bond price can be replicated and is related as follows: $$\sum_{t=0}^{N}c_ne^{-Y(t_n-t)}=\sum_{t=0}^{N}c_nP_{t_n}=\sum_{t=0}^{N}c_ne^{-Y_{t,t_n}(t_n-t)}$$ ...
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124 views

Is there evidence that delta-hedging of large investors affects markets?

I would expect that many traders hedge their exposure before market closing based on their positions. In order to determine the timing of readjustment, there should probably two channels affect the ...
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61 views

weird stationary pattern in LDO.MI's stock price

how to describe this pattern in Leonardo Finmeccanica's share price (observed here)? It is a fairly liquid stock, but the price seems to alternate between ca. 8 and ca 13!! Does anyone know what ...
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1k views

How to calculate average liquidity of a portfolio with multiple assets and weights?

I have a weighted portfolio with several assets and weights. Liquidity of my assets varies from low to high and concentration of assets in the portfolio change from one asset to another, for example ...
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206 views

Liquidity horizons of risk factors categories

I'm reading the consultative document of the BCBS on the Fundamental Review of the Trading Book: http://www.bis.org/publ/bcbs265.pdf Table 2 on page 16 shows the liquidity horizons for 5 broad risk ...
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197 views

What are the best measures of market liquidity?

Does any single metric provide a convenient way to capture depth, breadth, and resiliency, or to distinguish between transitory and persistent effects (i.e. between the stationary and random walk ...
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3k views

Liquidity Traders

I am thoroughly reading my first academic literature and I have found myself overwhelmed by terms that have been generalised in my studies. The extract is from "The Beauty Contest and Short-Term ...
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2answers
89 views

Initiating new orders with active “order-session” only?

Is it a must to establish "quote-session" & subscribing to quotes/market data before initiating a "New Order-single(Market-GTC)"? I actually can't see any use of quote-session for trading ...
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49 views

Liquidity effect in case MS decrease

What is the result if the liquidity effect is grater than other effects in case of decreased money supply? I got this question on the exam, In case of an increase in the money supply by the central ...
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73 views

What are the causes of incorrect prices in the market?

If market resiliency, a measure of liquidity, is the amount of time it takes a market to bounce back from temporarily incorrect prices, then what makes a price "incorrect"? Is this like fat-finger ...
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236 views

Estimating an appropriate haircut for illiquid stocks

I am trying to determine an appropriate haircut for a basket of illiquid stocks that barely traded during the year. Can someone suggest me an approach to estimate the risk? My dataset has a lot of ...
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402 views

Research topics - neural networks and market liquidity

I am a masters student looking for some direction on using neural network on market depth data to help predict market liquidity and bid-ask spreads. Can some of the more experienced people give me ...
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5k views

How do I calculate approximate equity liquidity?

I am a developer rather than a quant. I need to decide whether a given equity passes some basic liquidity threshold. It doesn't have to be precise, just good enough. I have a Bloomberg terminal data ...
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87 views

Settlement/Spot/(bid ask spread) ratio

Are there any studies on the average difference or ratio between Settlement (execution price) and the Spot price dependant on lot size. I'm looking for a function such as ...
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638 views

Intraday versus daily volatility in slippage estimation

On page 21 of http://www.cims.nyu.edu/~almgren/papers/costestim.pdf Almgren has the formula $\displaystyle{\text{Slippage} = \frac{1}{2}\gamma\sigma\frac{X}{V}\left(\frac{\Theta}{V}\right)^{\frac{1}{...
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Charting order depth over time periods

I do a lot of analysis on order flow, tape reading, as it gives insight into what market participants want, or may be willing to do. In comparison, price charts show what happened, and technical ...
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321 views

Impact on bid/offer due to volume/size of trades placed

When observing bid/offer in the market I came across a question. How much trading a bond would impact its spread for subsequent trades ie. what is the impact on bid/offer due to volume/size of ...
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276 views

Share Repurchase and Bid ask Spread data

I am doing a Quantitative Finance PhD and would like some insight on data collection. I'm looking for open market share repurchase data (UK) over the past 2-3 decades. Simultaneously, their bid-ask ...
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840 views

Transaction Costs for Currency Pairs

I have been aggregating some tick data from Oanda's streaming API to try and get an idea of the relative cost and best time to trade different currency pairs. The idea was to plot the spread of the ...
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Is there evidence that illiquid stocks, held less by institutions, have more price momentum?

(One of) the standard explanation people gave for momentum is under-reaction of stockholders to firm-specific news. If this is true, then it seems that these stocks should have more momentum, and ...
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Papers and algorithms on bidding schemes for best order execution?

I'm building an automated option trading bot that executes common options multi-leg strategies (straddles, spreads) and I want to learn the best way to execute my orders. As you know, the bid-ask ...
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451 views

Disclosure of the liquidity provider identity in ITCH

If you look into the description of Nasdaq ITCH data, you see two types of order entries in the book: Message of Type A and F. Under type F, you will see the identity of the market participant (MPID). ...
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850 views

Liquidity seeking algorithms open source implementation

Are there any free online liquidity seeking algorithms? Possible an open source implementation? Not looking for anything state-of-the-art, but just to get an idea how they work.
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615 views

How could HFT help increase liquidity? [duplicate]

I have ready in several websites that HFT can help increase market liquidity, although this is contested in some articles. I am not familiar with the concept of market liquidity. What is the basis of ...
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771 views

Time Series or Regression

I'd like to research the impact of certain events and characteristics on the liquidity of the stocks over time. I've got a sample of 200 stocks and I use several measures of liquidity (Amihud, Bid-Ask ...
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433 views

Liquidity diversification

The liquidity diversification can be measured by the liquidity score, defined here as the ratio between the pure market P&L CVaR and the market+liquidity P&L CVaR. I have tried to reproduce ...
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100 views

Liquidity and Prices

Do fewer transaction costs and higher liquidity relate to lower market prices? Are there any good resources that deal with these topics in more detail?
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532 views

how to define liquidity in equity, index, and etf options

i've heard several ways to put a metric on liquidity of options.. obviously liquidity isn't a constant.. things like the Bid/Asks spread, liquidity of the underlying.. Trying to find a way to ...
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507 views

Alternative liquidity measures

I'm going to write the MSc thesis on flight-to-liquidity phenomenon in stock markets and I'm interested in liquidity measures other than Amihud or bid-ask spread. What are some other popular measures ...
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100 views

Separated software and physical cash flows modelling and pricing to be used with negative interest rates?

The physical cash presence in the final transactions is one of the issues in the presently observed negative interest rates bonds. Such a situation has historically been modelled within the "liquidity ...
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205 views

transaction size and liquidity in simulation of US stocks

i am developing a simulation trading in US stocks. i have 1 transaction a day per stock, assumed for simplicity to be executed at the daily closing price. in order to determine a reasonable maximal ...