What Are the Best Liquidity Proxies for Global Research
TL;DR: In this article, the authors identify high quality liquidity proxies based on low-frequency (daily) data, which provide 1,000X to 10,000x computational savings compared to computing high frequency (intraday) liquidity measures.
Abstract: Liquidity plays an important role in global research. We identify high quality liquidity proxies based on low-frequency (daily) data, which provide 1,000X to 10,000X computational savings compared to computing high-frequency (intraday) liquidity measures. We find that: (1) Closing Percent Quoted Spread is the best monthly percent-cost proxy when available, (2) Amihud, Closing Percent Quoted Spread Impact, LOT Mixed Impact, High-Low Impact, and FHT Impact are tied as the best monthly cost-per-dollar-volume proxy, (3) the daily version of Closing Percent Quoted Spread is the best daily percent-cost proxy, and (4) the daily version of Amihud is the best daily cost-per-dollar-volume proxy.
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TL;DR: In this paper, the authors used green bonds as an instrument to identify the effect of non-pecuniary motives, specifically pro-environmental preferences, on bond market prices.
Abstract: We use green bonds as an instrument to identify the effect of non-pecuniary motives, specifically pro-environmental preferences, on bond market prices. We perform a matching method, followed by a two-step regression procedure, to estimate the yield differential between a green bond and a counterfactual conventional bond from July 2013 to December 2017. The results suggest a small negative premium: the yield of a green bond is lower than that of a conventional bond. On average, the premium is -2 basis points for the entire sample and for euro and USD bonds separately. We show that this negative premium is more pronounced for financial and low-rated bonds. The results emphasize the low impact of investors’ pro-environmental preferences on bond prices, which does not represent, at this stage, a disincentive for investors to support the expansion of the green bond market.
480 citations
TL;DR: In this paper, the authors present the first empirical study on the announcement returns and real effects of green bond issuance by firms in 28 countries during 2007-2017 and show that institutional ownership, especially from domestic institutions, increases after the firm issues green bonds.
289 citations
TL;DR: In this paper, the authors demonstrate a positive effect of stock liquidity on blockholder governance, showing that stock liquidity increases the likelihood of block formation and has an unconditional positive effect on voice as well as exit.
Abstract: This paper demonstrates a positive effect of stock liquidity on blockholder governance. Liquidity increases the likelihood of block formation. Conditional upon acquiring a stake, liquidity reduces the likelihood that the blockholder governs through voice (intervention)--as shown by the lower propensity for active investment (filing Schedule 13D) than passive investment (filing Schedule 13G). The lower frequency of activism does not reflect the abandonment of governance, but governance through the alternative channel of exit (selling one's shares): A 13G filing leads to positive announcement returns and improvements in operating performance, especially in liquid firms. Moreover, taking into account the increase in block formation, liquidity has an unconditional positive effect on voice as well as exit. We use decimalization as an exogenous shock to liquidity to identify causal effects. The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
264 citations
TL;DR: In this paper, the authors examine an important source of uncertainty that likely cannot be influenced by most managers and investors: uncertainty about government economic policy and find that this uncertainty is associated with increased bid-ask spreads and decreased stock price reactions to earnings surprises.
260 citations
TL;DR: In this article, the authors examined the illiquidity premium in stock markets across 45 countries and found that there is a commonality across countries in the ill-iquidity return premium, controlling for common global return factors and variation in global illiquidities.
Abstract: Examining the illiquidity premium in stock markets across 45 countries, we find the following. First, the average illiquidity return premium across countries is positive and significant, after controlling for other pricing factors. The premium is measured by monthly return series on illiquid-minus-liquid stocks or by the coefficient of stock illiquidity estimated from cross-section Fama-MacBeth regressions. Second, there is a commonality across countries in the illiquidity return premium, controlling for common global return factors and variation in global illiquidity. This commonality is different from commonality in illiquidity itself and is greater in globally-integrated markets.
234 citations
Cites result from "What Are the Best Liquidity Proxies..."
...Fong, Holden, and Trzcinka (2011) find that across countries, Illiq is highly and significantly correlated with Kyle’s (1985) price impact measure, consistent with earlier findings for the U.S. by Amihud (2002), Hasbrouck (2009), and Goyenko, Holden, and Trzcinka (2009)....
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References
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TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.
Abstract: This paper tests the relationship between average return and risk for New York Stock Exchange common stocks. The theoretical basis of the tests is the "two-parameter" portfolio model and models of market equilibrium derived from the two-parameter portfolio model. We cannot reject the hypothesis of these models that the pricing of common stocks reflects the attempts of risk-averse investors to hold portfolios that are "efficient" in terms of expected value and dispersion of return. Moreover, the observed "fair game" properties of the coefficients and residuals of the risk-return regressions are consistent with an "efficient capital market"--that is, a market where prices of securities
14,171 citations
"What Are the Best Liquidity Proxies..." refers methods in this paper
...The average cross-sectional correlations are computed in the spirit of Fama and MacBeth (1973) by: (i) calculating for each month the cross-sectional correlation across all firms and then (ii) calculating the average correlation value over all months....
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01 Dec 1989TL;DR: This best-selling title, considered for over a decade to be essential reading for every serious student and practitioner of computer design, has been updated throughout to address the most important trends facing computer designers today.
Abstract: This best-selling title, considered for over a decade to be essential reading for every serious student and practitioner of computer design, has been updated throughout to address the most important trends facing computer designers today. In this edition, the authors bring their trademark method of quantitative analysis not only to high-performance desktop machine design, but also to the design of embedded and server systems. They have illustrated their principles with designs from all three of these domains, including examples from consumer electronics, multimedia and Web technologies, and high-performance computing.
11,671 citations
"What Are the Best Liquidity Proxies..." refers background in this paper
...6 Hennessy and Patterson (2012) report a 31.0% compound annual growth rate of computer power....
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9,341 citations
"What Are the Best Liquidity Proxies..." refers background in this paper
...We examine thirteen monthly cost-per-dollar-volume proxies relative to a monthly cost-per-dollar-volume benchmark: the slope of the price function, which is often called “lambda” by reference to the same concept in Kyle (1985)....
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TL;DR: In this paper, the effects of stock illiquidity on stock return have been investigated and it was shown that expected market illiquidities positively affects ex ante stock excess return (usually called risk premium) over time.
Abstract: New tests are presented on the effects of stock illiquidity on stock return. Over time, expected market illiquidity positively affects ex ante stock excess return (usually called â¬Srisk premiumâ¬?). This complements the positive cross-sectional return-illiquidity relationship. The illiquidity measure here is the average daily ratio of absolute stock return to dollar volume, which is easily obtained from daily stock data for long time series in most stock markets. Illiquidity affects more strongly small firms stocks, suggesting an explanation for the changes â¬Ssmall firm effectâ¬? over time. The impact of market illiquidity on stock excess return suggests the existence of illiquidity premium and helps explain the equity premium puzzle.
5,333 citations
TL;DR: In this paper, the authors evaluate alternative methods for classifying individual trades as market buy or market sell orders using intraday trade and quote data and identify two serious potential problems with this method, namely, that quotes are often recorded ahead of the trade that triggered them and that trades inside the spread are not readily classifiable.
Abstract: This paper evaluates alternative methods for classifying individual trades as market buy or market sell orders using intraday trade and quote data. We document two potential problems with quote-based methods of trade classification: quotes may be recorded ahead of trades that triggered them, and trades inside the spread are not readily classifiable. These problems are analyzed in the context of the interaction between exchange floor agents. We then propose and test relatively simple procedures for improving trade classifications. THE INCREASING AVAILABILITY OF intraday trade and quote data is opening new frontiers for financial market research. The improved ability to discern whether a trade was a buy order or a sell order is of particular importance. In Hasbrouck (1988), the classification of trades as buys or sells is used to test asymmetric-information and inventory-control theories of specialist behavior. In Blume, MacKinlay, and Terker (1989), a buy-sell classification is used to measure order imbalance in tests of breakdowns in the linkage between S&P stocks and non-S&P stocks during the crash of October, 1987. In Harris (1989), an increase in the ratio of buys to sells is used to explain the anomalous behavior of closing prices. In Lee (1990), the imbalance in buy-sell orders is used to measure the market response to an information event. In Holthausen, Leftwich, and Mayers (1987), a buy-sell classification is used to examine the differential effect of buyer-initiated and seller-initiated block trades. Most past studies have classified trades as buys or sells by comparing the trade price to the quote prices in effect at the time of the trade. In this paper, we identify two serious potential problems with this method, namely, that quotes are often recorded ahead of the trade that triggered them, and that
3,301 citations
"What Are the Best Liquidity Proxies..." refers methods in this paper
...We follow the Lee and Ready (1991) method, which specifies that a trade is a buy when Pk > Mk, is a sell when Pk Mk, and the tick test is used when Pk ¼Mk....
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