Measures of stock Illiquidity
The liquidity proxy developed by Amihud (2002) is one of the most widely used liquidity proxies in the finance literature. The Amihud measure has a simple construction that uses the absolute value of the daily return-to-volume ratio to capture price impact. The liquidity proxies existed even before Amihd’s measures, e.g., effective spreads of Roll (1984). Over the period of time, researchers extended the Amihud measure e.g. (Goyenko, Holden, and Trzcinka, 2009). Other price impact ratios include the Roll impact ratio, Pastor and Stambaugh (2003) ratio, and Amivest liquidity.
Our Stata Code
We have developed easy to use yet robust codes for different measures of stock liquidity. The codes need just a basic understanding of Stata. Further, our comments on each line of code will surely help you to not only apply the code but also understand the process more clearly.
We can also help by modifying the codes to match different research questions and hypothesis. Currently, we have the following liquidity measures:
The code is available for $ 100/model, plus a $50 for raw data processing (in case the data is not in Stata format and variables are not already constructed). For further details, please contact us at:
Amihud, Y. (2002). Illiquidity and stock returns: cross-section and time-series effects. Journal of financial markets, 5(1), 31-56.
Corwin, S. A., & Schultz, P. (2012). A simple way to estimate bid‐ask spreads from daily high and low prices. The Journal of Finance, 67(2), 719-760.
Florackis, C., Gregoriou, A., & Kostakis, A. (2011). Trading frequency and asset pricing on the London Stock Exchange: Evidence from a new price impact ratio. Journal of Banking & Finance, 35(12), 3335-3350.
Goyenko, R. Y., Holden, C. W., & Trzcinka, C. A. (2009). Do liquidity measures measure liquidity?. Journal of financial Economics, 92(2), 153-181.
Pastor, L., Stambaugh, R., (2003). Liquidity risk and expected stock returns. Journal of Political Economy 111, 642–685.