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| Author: | Mahanti, S. (et al.) |
| Title: | Latent liquidity: A new measure of liquidity, with an application to corporate bonds |
| Journal: | Journal of Financial Economics
2008 : MAY, VOL. 88:2, p. 272-298 |
| Index terms: | bond markets liquidity measurement assets pricing |
| Language: | eng |
| Abstract: | This paper presents a new liquidity measure known as "latent liquidity" (hereafter as: l-liqty). It is applied to a unique corporate bond database. L-liqty is defined as the weighted average turnover of investors holding a bond, in which the weights are the fractional investor holdings. It can be used to measure liquidity in markets with sparse transactions data. For frequently traded bonds, l-liqty. has predictive power for both transaction costs and the price impact of trading, over and above trading activity and bond-specific characteristics (here as: chars). In addition, this measure shows relationships with bond chars. similar to those of other trade-based measures. |
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