We hypothesize and test an inverse relation between liquidity and price volatility derived from microstructure theory. Two important facets of liquidity trading are examined: thickness and noisiness. As represented by the expected volume (thickness) and realized average commission cost per share...

This study examines the effect of cash market liquidity on the volatility of stock index futures. Two facets of cash market liquidity are considered: (1) the level of liquidity trading proxied by the expected New York Stock Exchange (NYSE) trading volume and (2) the noise composition of trading...