Document Type
Article
Publication Date
3-1-2021
Abstract
Amihud’s stock (il)liquidity measure averages daily ratios of the absolute close-to-close return to dollar volume, including overnight returns. Our modified measure uses open-to-close returns matching return and trading volume measurement windows. It is more strongly correlated with trading-cost measures (by 8%–37%) and better explains cross-sections of returns, doubling estimated liquidity premiums. Using nonsynchronous trading near close, we show overnight returns are primarily information driven: including them in Amihud’s proxy for price impacts of trading magnifies measurement error, understating liquidity premiums. Our modification helps wherever Amihud’s measure is required. Our measures are publicly available for 1964–2019 and can be updated. (JEL G12, G14)
Recommended Citation
Yashar H Barardehi, Dan Bernhardt, Thomas G Ruchti, Marc Weidenmier, The Night and Day of Amihud’s (2002) Liquidity Measure, The Review of Asset Pricing Studies, Volume 11, Issue 2, June 2021, Pages 269–308, https://doi.org/10.1093/rapstu/raaa022
Peer Reviewed
1
Copyright
The authors
Comments
This is a pre-copy-editing, author-produced PDF of an article accepted for publication in The Review of Asset Pricing Studies, volume 11, issue 2, in 2021 following peer review. The definitive publisher-authenticated version is available online at https://doi.org/10.1093/rapstu/raaa022.