Liquidity of Emerging Markets
David A. Lesmond, Tulane University

Adopting the security return model developed by Lesmond, Ogden, and Trzcinka (1999), liquidity measures are estimated for all securities and time periods for which daily prices are available in 31 emerging markets from 1991 to 2000. The correlation of the liquidity estimate with the bid-ask spread is over 80% in all 23 of the emerging markets for which spreads are available. The liquidity estimate is significantly related to trade difficulty, trading activity, and market quality. (Accepted Spring 2003.)

Those of our members who trade or invest in emerging markets must be sensitive to the costs of trade there. However, those costs can be difficult to measure. This study provides proxies for emerging market transaction costs that will allow traders to better predict the costs of trading in various markets.


?>