Measuring Liquidity in Financial Markets

Author/Editor:

Tonny Lybek ; Abdourahmane Sarr

Publication Date:

December 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper provides an overview of indicators that can be used to illustrate and analyze liquidity developments in financial markets. The measures include bid-ask spreads, turnover ratios, and price impact measures. They gauge different aspects of market liquidity, namely tightness (costs), immediacy, depth, breadth, and resiliency. These measures are applied in selected foreign exchange, money, and capital markets to illustrate their operational usefulness. A number of measures must be considered because there is no single theoretically correct and universally accepted measure to determine a market's degree of liquidity and because market-specific factors and peculiarities must be considered.

Series:

Working Paper No. 2002/232

Subject:

Asset prices Currency markets Liquidity Liquidity indicators Securities markets

English

Publication Date:

December 1, 2002

ISBN/ISSN:

9781451875577/1018-5941

Stock No:

WPIEA2322002

Pages:

63

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