Amihud Illiquidity Measure
Market Microstructure glossary · Spread Economics & Liquidity Measurement
Definition
A coarse, daily-data measure of illiquidity equal to the average ratio of absolute return to dollar volume; higher values indicate greater price impact per unit volume.
Amihud Illiquidity Measure in plain English
The Amihud measure is a rough thermometer for how much a stock's price gets shoved around when people trade it, using only cheap daily data. The idea: on each day, compare how far the price moved to how many dollars actually changed hands, then average those over time. If a small amount of trading moves the price a lot, the stock is 'illiquid' and the number is high; if huge trading barely nudges the price, it's liquid and the number is low. It's like asking how much a boat rocks per person who steps on, a wobbly dinghy (illiquid) versus a steady ferry (liquid).
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