Take the tour ×  While liquidity is one of the key figure of
financial markets, It seems to be very difficult to measure.
Volume is sometime used as a proxy but can sometimes be
completly irrelevant.  Could you point to relevant research on
what data to use and how to compute the measure?  share|improve
this question add comment  6 Answers  up vote 5 down vote
accepted  Volume merely indicates how much buy-side interest
exists in a stock. For liquidity, the sell-side interest is more
relevant, which implies the quote characteristics (the limit-
order book).  In addition to the bid-ask spread, I look at the
top-of-book quote size. Here's an example from BATS:  sym | bid
ask    bidsize asksize AAPL| 325.12 325.21  100     100
MSFT|  24.70  24.71 3900    5900     I can only buy \$32,521
worth of Apple without impacting price, as opposed to \$145,789
of Microsoft. So the slippage is smaller.  There are more
sophisticated measurements for order book entries. I could look
at the full book ("level II data") to