easy · Market Microstructure
Which of the following best describes the key distinction between the Amihud (2002) illiquidity ratio and the quoted bid-ask spread as measures of market liquidity, particularly for capturing price resilience after a large institutional block trade?
- The quoted spread captures price impact per unit of volume while Amihud captures the cost of crossing the spread on a single round-trip.
- The Amihud ratio captures price impact per unit of volume traded over a period, making it better suited to measuring depth and resilience; the quoted spread captures the instantaneous cost of a marginal round-trip trade.
- The quoted spread is superior for measuring resilience because it updates continuously, while Amihud is a static end-of-day measure.
- Both metrics are equivalent measures of liquidity when computed on daily data; the Amihud ratio simply scales the spread by average daily volume.
Sign up free to see the explanation and track your rank →
More Market Microstructure practice
- A stock is quoted at $50.00 bid x $50.10 ask. A buyer submit… — How does this action affec
- A stock is trading at $100.00. The Level 1 S&P 500 Market-Wi… — What is the status of trad
- If the stock price drops instantly from $50.05 to $49.00 in a 'flash crash,' what happens
- Under the National Market System (Reg NMS), if Exchange A is quoting a stock at $10.00 x
- If the stock gaps down and opens at $69.50 on Tuesday morning, at what price will the trad
- If the dealer uses a quote shading parameter of κ = 0.00004 to manage inventory, what is t
- A trader places a large sell order for 50,000 shares at $50.01 only to cancel it immediate
- Using the Lee-Ready algorithm, how should a trade occurring at $50.10 following a $50.00 t