Market and Liquidity Risks Using Transaction-by-Transaction Information

The usual measures of market risk are based on the axiom positive homogeneity while neglecting an important element information—liquidity. To analyze effects this omission, in present study, we define behavior prices and volume via stochastic processes subordinated to time elapsing between two consecutive transactions market. Using simulated data from companies different sizes capitalization levels, compare results measuring using compared both volumes. indicate that traditional behave inversely degree liquidity asset, thereby underestimating liquid assets overestimating less assets.