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Relative Liquidity and Future Volatility

SSRN Electronic Journal
2015
  • 1
    Citations
  • 1,593
    Usage
  • 1
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    1
    • Citation Indexes
      1
  • Usage
    1,593
    • Abstract Views
      1,463
    • Downloads
      130
  • Captures
    1
    • Readers
      1
      • SSRN
        1
  • Ratings
    • Download Rank
      446,593

Article Description

The main contribution of this paper is to identify the strong predictive power of the relative, rather than the absolute, volume of orders over volatility. To this end, we propose a new measure, relative liquidity, which accounts for how quoted depth is distributed in a limit order book and captures the level of consensus on a security's trading price. Higher liquidity provision farther away from the best quotes, relative to the rest of the book, is associated with a disagreement on the current price and followed by high volatility. The relationship is robust to the inclusion of several alternative measures.

Bibliographic Details

Marcela Valenzuela; Ilknur Zer; Piotr Fryzlewicz; Thorsten Rheinlander

Elsevier BV

order-driven markets; limit order book distribution; volatility predictability; liquidity

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