Tackling Boundary Effects in Nonparametric Estimation of Intra-Day Liquidity Measures
- 293 Downloads
We investigate methods to estimate intra-day liquidity measures which take into account boundary bias problems affecting the open and closing trading period. In a simulation study we demonstrate the severity of boundary effects when using standard kernel approaches and find that local linear as well as variable kernel estimators offer a much improved performance. In an empirical application using financial transactions data our alternative estimators are able to detect the striking asymmetry between the open and close of the New York stock exchange trading process, while standard kernel smoothers fail to do so.
KeywordsLiquidity nonparametric estimation boundary effects financial transactions data local linear estimation variable kernel methods
- Bouezmarni, T. and Rolin, J.: 2001, Consistency of beta kernel density function estimator, Discussion Paper 0108, Institut de Statistique, Université Catholique de Louvain.Google Scholar
- Chen, S. X.: 1999b, Probability density function estimation using gamma kernels, Discussion Paper, School of Statistical Science, La Trobe University.Google Scholar
- Schwartz, R. A.: 1992, Market liquidity, P. Newman, M. Milgate and J. Eatwell (eds), The New Palgrave Dictionary of Money and Finance, Macmillan, London, pp. 666–667.Google Scholar