Paolo Santucci De Magistris, LUISS

"Realized Illiquidity"

Abstract

We develop a simple theory of realized illiquidity, defining it as the ratio between realized volatility and trading volume. Building on the popular price impact measure introduced by Amihud (2002), we propose the realized Amihud measure, which refines and improves accuracy. We demonstrate that the realized Amihud is significantly more precise and robust, accommodating various factors such as stochastic volatility, microstructure noise, and information jumps. Using a cross-section of U.S. stocks, we examine the time-series properties of realized illiquidity, including heterogeneous clustering, leverage effects, and its predictive power for short-term stock returns.

Contact person: Anders Rahbek