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The daily ratio of absolute return to dollar volume, used to proxy price impact per dollar traded.
The daily ratio of absolute return to dollar volume, used to proxy price impact per dollar traded.
Proposed by Yakov Amihud (2002), the Illiquidity Ratio is the standard empirical proxy for the Kyle (1985) lambda the price impact coefficient. It is widely used in cross-sectional and time-series studies of liquidity, asset pricing (the Illiquidity Premium), and trading cost estimation.
Higher values indicate less liquid assets; averages are dominated by small-cap and distressed names.
Used to construct the Illiquidity Premium factor in academic asset pricing.
Daily averages over a month form the standard monthly ILLIQ measure.