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|Title: ||Latent Liquidity: A New Measure of Liquidity, with an Application to
|Authors: ||Mahanti, Sriketan|
Subrahmanyam, Marti G.
|Issue Date: ||Nov-2006 |
|Series/Report no.: ||FIN-06-024|
|Abstract: ||We present a new measure of liquidity known as “latent
liquidity” and apply it to a unique corporate bond database.
Latent liquidity is defined as the weighted average turnover of
investors who hold a bond, where the weights are the fractional investor
holdings. It can be used to measure liquidity in markets with sparse
transactions data. This measure exhibits relationships with bond
characteristics similar to those of other trade-based measures. For
bonds that trade frequently, our measure has predictive power for both
transaction costs and the price impact of trading, over and above
trading activity and bond-specific characteristics thought to be related
|Appears in Collections:||Finance Working Papers|
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