Title: Dependence structure of realized volatility and illiquidity
Authors: Henryk Gurgul - AGH University of Science and Technology (Poland) [presenting]
Abstract: The results of an investigation into the relationship between illiquidity and realized volatility of the time series of stocks listed in the Warsaw Stock Exchange (WSE) and Vienna Stock Exchange (VSE) are presented. The first measure of illiquidity is the well-known Amihud ratio AMI, and the second is a transformation of the Liquidity Index called ILLIX. The results of the detection of structural breaks, their removal, calculation of long memory, and finally the dependence structure of the illiquidity and realized volatility by copulas are also demonstrated. Both types of series exhibit structural breaks and long-memory properties. Despite the similarity of the illiquidity measures, their associations with realized volatility are different. The dependence structures described by copulas for pairs AMI- realized volatility show a dependence in the upper tails; i.e., the high values of illiquidity are related to high volatility. However, in the case of the ILLIX-realized volatility pairs, the dependence was detected in the lower tail; i.e., the low ILLIX is accompanied by low realized volatility.