What Are the Best Liquidity Proxies for Global Research?*
What Are The Best Liquidity Proxies For Global Research?* Kingsley Y. L. Fong Craig W. Holden** Charles A. Trzcinka University of New South Wales Indiana University Indiana University . March 2015 JEL classification: C15, G12, G20. Keywords: Liquidity, transaction costs, effective spread, price impact. * We thank seminar participants at Hong Kong University, Hong Kong University of Science and Technology, Indiana University, Michigan State University, University of New South Wales, University of Sydney Microstructure Meeting, University of Technology, Sydney, and University of Wisconsin, Milwaukee. We are solely responsible for any errors. ** Corresponding author: Craig W. Holden, Kelley School of Business, Indiana University, 1309 E. Tenth St., Bloomington, IN 47405. Tel.: + 1-812-855-3383; fax: + 1-812-855-5875: email address: cholden@ indiana.edu What Are The Best Liquidity Proxies For Global Research? Abstract We compare both monthly and daily liquidity proxies constructed from low-frequency (daily) stock data to corresponding liquidity benchmarks computed from high-frequency (intraday) data on 43 exchanges. We find that for both monthly and daily frequencies Closing Percent Quoted Spread strongly dominates all other percent-cost proxies for global research. It provides enormous performance gains over the monthly proxies that global research has used-to-date. At both daily and monthly frequencies, Closing Percent Quoted Spread also does the best job of capturing the level of percent effective spread and percent quoted spread. At both frequencies, High-Low does the best job of capturing the level of percent realized spread and percent price impact. These are the first findings at the daily frequency that liquidity proxies can perform well.
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