How large is liquidity risk in a automated auction market?

Giot, Pierre;Grammig, Joachim
(2002)

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  • Giot, Pierre
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  • Grammig, Joachim
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Abstract
We introduce a new empirical methodology that takes account of liquidity risk in a Value-at-Risk framework, and quantify liquidity risk premiums for portfolios and individual stocks traded on the automated auction market Xetra which operates at various European exchanges. When constructing liquidity risk measures we allow for the potential price impact incurred by the liquidation of a portfolio. We study the sensitivity of liquidity risk towards portfolio size and VaR time horizon, and interpret its diurnal variation in the light of market microstructure theory.
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Giot, P., & Grammig, J. (2002). How large is liquidity risk in a automated auction market? (CORE Discussion Papers 2002/54). https://hdl.handle.net/2078.5/38473