TY  - JOUR
AU  - Engle,Robert F.
AU  - Lange,Joe
TI  - Measuring, Forecasting and Explaining Time Varying Liquidity in the Stock Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6129
PY  - 1997
Y2  - August 1997
UR  - http://www.nber.org/papers/w6129
L1  - http://www.nber.org/papers/w6129.pdf
N1  - Author contact info:
Robert F. Engle, III
Department of Finance, Stern School of Business
New York University, Salomon Center
44 West 4th Street, Suite 9-160
New York, NY  10012-1126
Tel: 212/998-0710
Fax: 212/995-4220
E-Mail: rengle@stern.nyu.edu
AB  - The paper proposes a new measure, VNET, of market liquidity which directly measures the depth of the market.  The measure is constructed from the excess volume of buys or sells during a market event defined by a price movement.  As this measure varies over time, it can be forecast and explained. Using TORQ data, it is found that market depth varies positively but less than proportionally with past volume and negatively with the number of transactions.  Both findings suggest that over time high volumes are associated with an influx of informed traders and reduce market liquidity.  High expected volatility as measured by the ACD model of Engle and Russell (1995) and wide spreads both reduce expected depth.  If the asymmetric trades are transacted in shorter than expected times, the costs will be greater giving an estimate of the value of patience.
ER  -