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http://dx.doi.org/10.5351/CKSS.2008.15.1.117

Estimation of Liquidity Cost in Financial Markets  

Lim, Jo-Han (Department of Applied Statistics, Yonsei University)
Lee, Ki-Seop (Department of Mathematics, University of Louisville)
Song, Hyun-Seok (Yurie Asset Management Company)
Publication Information
Communications for Statistical Applications and Methods / v.15, no.1, 2008 , pp. 117-124 More about this Journal
Abstract
The liquidity risk is defined as an additional risk in the market due to the timing and size of a trade. A recent work by Cetin et ai. (2003) proposes a rigorous mathematical model incorporating this liquidity risk into the arbitrage pricing theory. A practical problem arising in a real market application is an estimation problem of a liquidity cost. In this paper, we propose to estimate the liquidity cost function in the context of Cetin et al. (2003) using the constrained least square (LS) method, and illustrate it by analyzing the Kellogg company data.
Keywords
Constraint least square; liquidity cost; semi-parametric model;
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