Liquidity Measurement Problems in Fast, Competitive Markets: Expensive and Cheap Solutions
type="main"> <title type="main">ABSTRACT</title> <p>Do fast, competitive markets yield liquidity measurement problems when using the popular Monthly Trade and Quote (MTAQ) database? Yes. MTAQ yields distorted measures of spreads, trade location, and price impact compared with the expensive Daily Trade and Quote (DTAQ) database. These problems are driven by (1) withdrawn quotes, (2) second (versus millisecond) time stamps, and (3) other causes, including canceled quotes. The expensive solution, using DTAQ, is first-best. For financially constrained researchers, the cheap solution—using MTAQ with our new Interpolated Time technique, adjusting for withdrawn quotes, and deleting economically nonsensical states—is second-best. These solutions change research inferences.
Year of publication: |
2014
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Authors: | HOLDEN, CRAIG W. ; JACOBSEN, STACEY |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 69.2014, 4, p. 1747-1785
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Publisher: |
American Finance Association - AFA |
Saved in:
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