Original scientific paper

https://doi.org/10.15291/oec.4427

Liquidity score and bid-ask spread nexus: Empirical research on exchange traded bonds

Roberto Ercegovac ; OTP Bank d.d. Split *
Snježana Pivac orcid.org/0000-0001-6646-3524 ; Faculty of Economics, Business and Tourism, Split
Marija Vuković orcid.org/0000-0002-5383-6587 ; Faculty of Economics, Business and Tourism, Split

* Corresponding author.

Abstract

Recognition of the liquidity of financial assets is important management and accounting
requirement in holding of the bank or trade book of financial security position. Financial theory explains
the securities prices bid-ask spread and market liquidity nexus. Market liquidity decreases inventory
costs of market makers and reduces the spread value. After the 2007 global financial crisis, Bloomberg
has developed a new comprehensive measure of liquidity, accepted by market professionals. Finding
the liquidity score and bid-ask spread nexus is the base research objective of the paper. The research of
the correlation between bid-ask spread and liquidity score value is done on the public listed fixed income
securities on Euronext and London Stock Exchange. The significant negative relations exist only on
high liquid debt securities, as well as non-liquid securities. Researching results can be used in investing
decisions strategies and in security portfolio classification under the International Financial Reporting
Standards requirement.

Keywords

liquidity measures, bid-ask spread, liquidity score, IFRS 13

Hrčak ID:

318441

URI

https://hrcak.srce.hr/318441

Publication date:

1.6.2024.

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