Liquidity risk and asset movement evidence from brexit

Exchange-Traded Funds (ETFs) have been widely viewed as a more liquid alternative to mutual funds. Liquidity is an important consideration while analyzing investment opportunities of ETFs. Since liquidity is not directly observable in financial markets, there exist proxies to quantify liquidity in the market. In this study, we consider 25 liquidity measures that are feasible to serve as proxies and maybe calculated using the high frequency data set available. We use a statistical model to examine whether liquidity affects the movement of price. We study this effect to show how liquidity measures impact the components of XLU ETF. We conclude that considering only one liquidity measure in an asset pricing model is not sufficient to capture the dynamics of market liquidity.