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Intrinsic Liquidity in Conditional Volatility Models

Darolles, Serge; Francq, Christian; Le Fol, Gaëlle; Zakoïan, Jean-Michel (2016), Intrinsic Liquidity in Conditional Volatility Models, Annals of Economics and Statistics, 123/124, p. p. 225-245. 10.15609/annaeconstat2009.123-124.0225

Type
Article accepté pour publication ou publié
Date
2016
Journal name
Annals of Economics and Statistics
Volume
123/124
Pages
p. 225-245
Publication identifier
Metadata
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Author(s)
Darolles, Serge
Dauphine Recherches en Management [DRM]
Francq, Christian
Centre de Recherche en Économie et Statistique [CREST]
Le Fol, Gaëlle
Dauphine Recherches en Management [DRM]
Zakoïan, Jean-Michel
Centre de Recherche en Économie et Statistique [CREST]
Abstract (EN)
Until recently the liquidity of financial assets has typically beenviewed as a second-order consideration. Liquidity was frequently associatedwith simple transaction costs that impose - temporary if any- effect on assetprices, and whose shocks could be easily diversified away. Yet the evidenceespeciallythe recent liquidity crisis- suggests that liquidity is now a primaryconcern. This paper aims at disentangling market risk and liquidity riskin the context of conditional volatility models. Our approach allows theisolation of the intrisic liquidity of any asset, and thus makes it possible todeduce a liquidity risk even when volumes are not observed.
Subjects / Keywords
C01; C58; C22; G11; Value-at-Risk; Risk measures; Quasi-Maximum Likelihood; Liquidity; Garch
JEL
C01 - Econometrics
C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
C58 - Financial Econometrics
G11 - Portfolio Choice; Investment Decisions