Amihud measure explained: liquidity risk of stocks (Excel)

[@NEDLeducation]

You can find the spreadsheets for this video and some additional materials here: drive.google.com/drive/folders/1sP40IW0p0w5IETCgo464uhDFfdyR6rh7 Please consider supporting NEDL on Patreon: www.patreon.com/NEDLeducation

[@drachenschlachter6946]

I'm going to write my master thesis and I needed a method to Analyse the liquidity (risk) of asset groups... Thank you for this perfekt video!!

[@arifamemon1232]

Thank you so much, it is helpful for me.

[@vegatroz]

Clear explanation. Thanks!

[@PithakpongThongmitra]

Thank you very much for this clip. And I have a question. Can i use trading value to subsitute (trading volume*open price) ?

[@nicolaspatassi3877]

Definitely usefull ! thanks a lot for your work. Is the same explaination for bonds / credit securities or portfolio in the pipe for a future tuto ?

[@NEDLeducation]

Hi Nicolas, and glad you enjoyed the video! Yes, absolutely, you can use this model to calculate liquidity/illiquidity for any asset that has daily prices and volumes available.

[@Claudemcd1]

Thanks Savva for this very effective video (as usual). I am wondering what the usefulness is of this illiquidity measure, the reason being that it is calculated as an average, but it has a huge Standard Deviation (if I am not mistaken)... Any perspective on that ?

[@bambangsutrisno_umj]

If I use Indonesia stocks, to compute volume (in Rupiah), should I divide 1 billion after multiplying volume (in shares) with opening price? Thanks in advance.

[@georshpaulinovictoriano124]

Hello! I've a question. If I want a quaterly Ahimud indicator, should I multiply by 90 (the days in the quarter) the denominator? All that because technically I had the sum of 90 days and the return from quarter to quater.

[@georshpaulinovictoriano124]

All of this because of the averege part of the ahimud

[@NEDLeducation]

Hi, and thanks for a great question! Yes, you could adjust it this way, however as there are 252 trading days in a year, you can use 63 instead of 90.

[@georshpaulinovictoriano124]

@@NEDLeducation Thank you so much!

[@metehantoprak4849]

Great content! It really helps for individuals who are related to this area. I'm looking for William O'Neil's Relative Strength Indicator which gauges relationship between a particular stock and index. Can you share the proper calculation for that? IBD, the company, calculates the ratio and then makes it between 0 and 99. 99 means the particular stock overperformed the whole index in specified time frame. I have been searching for that but i could not find the true calculation on the internet. Anyway, thanks for your contents!

[@NEDLeducation]

Hi Metehan, and glad you are enjoying the channel! As for your question, I have got a video on relative strength index applications for algorithmic trading here, check it out if you are interested: kzbin.info/www/bejne/mpe3Z6WkoK92o9U. Long story short, the indicator is calculated as the following. First, select a rolling window/lag (typically 10-30 trading days). Then, calculate closing price changes in each of these days. Divide the sum of all positive price changes onto the absolute sum of all negative price changes to calculate relative strength (RS). Finally, compute 100 - 100/(1+RS) to get the relative strength index or indicator (RSI). RSI is bounded from 0 (when share price is moving exclusively down) to 100 (when share price is moving exclusively up). RSI is typically assuming price movement reversals, i.e. large movements in one direction being followed by rebounds or corrections in another direction, so RSI < 30 is a bullish signal and RSI > 70 is a bearish signal. Hope it helps!

[@gtampako]

Again, an excellent and we'll understood video. I think the 1/n factor is missing from the formula on order to count the average?

[@NEDLeducation]

Hi, the formula is updated in the Excel file on our Google Drive for better clarity :)

[@lukaskirchner9188]

@NEDL this is wrong. What you do is (Sum Return) / (Sum Volume) but the formula says Sum (Return/Volume). Please comment that I am right

[@NEDLeducation]

Hi Lukas, and thanks for the comment! There is a typo in the mathematical formula however the Excel implementation shows the correct approach. Thanks for nothing that!

[@kishornaik4948]

Sir, can you guide me how we can use amihud to measure herding 🙏🙏

[@NEDLeducation]

Hi Kishor, and thanks for the question! I have not come across using the Amihud ratio to measure herding (you can use the Amihud liquidity risk factor and the Hwang and Salmon herding towards beta, but this looks like overkill honestly). You can use liquidity as a sorting mechanism in conventional herding approaches such as CSSD and CSAD herding models which I have got videos on here: kzbin.info/www/bejne/laSUfX2Va5ibr8k. This is what Indars et al. (2019) do in their paper (unipub.lib.uni-corvinus.hu/3865/1/cewp_201901.pdf) by investigating herding in low versus high liquidity days (in addition to bullish and bearish market days), but this is far from standard in the herding literature as far as I am aware. Hope this helps!

[@terryharm3547]

Question ??? Is the volume reported for the day, a sum of all of the trades for that day or just the last trade? Question two you converted to billion, why billion and not million or thousand. Video is very helpful

[@金天-m6s]

Hi! What if both the denominator and numerator are zero? How to caluculate illiquidity then?

[@NEDLeducation]

Hi, and thanks for the question! If both the numerator and denominator are zero, then the result for this particular trading day is undefined as there has been no trading (no price change and no volume), you can simply exclude this observation from calculations.

[@金天-m6s]

@@NEDLeducation thanks!

[@hemantjoshi5034]

Can't we calculate the liquidity risk as SD of liquidity

[@phanquochung3924]

thank you teacher

[@NEDLeducation]

Hi Phan, and glad you enjoyed the video!

[@phanquochung3924]

@@NEDLeducation sure teacher, having a semester break now and enjoying all your past videos, glad I found you

[@marcjenkins6560]

Great video! But are you sure that the Amihud Illiquidity measure is expressed in percentage terms?

[@NEDLeducation]

Hi Marc, and thanks for a great question! Not conventionally, but in this tutorial it made sense to represent it as a percentage to show the illiquidity risk and illiquidity costs associated with it.

[@amihudbutar-butar5132]

my name Amihud