ANGELO RANALDO INTRADAY MARKET LIQUIDITY ON THE SWISS STOCK EXCHANGE Angelo Ranaldo, UBS Asset Management, Zürich, Switzerland (angelo.ranaldo@ubs.com) Many thanks to professors J. Pasquier-Dorthe (U. of Fribourg) and J. Hasbrouck (NYU). I am also grateful to S. Gay, R. Häberle, A. Vukic, M. Ruffa, J. Davies and all my colleagues at UBS AM. The views expressed herein are those of the author. The UBS AG does not take on any responsibility about the contents and the opinions expressed in this paper. 1. Introduction This study empirically analyzes the intraday market liquidity and the intraday market con- centration on the Swiss Stock Exchange (here- after) SWX. The SWX is a pure order driven market based on two main features: (1) there are no designated market makers, and (2) the trading and the quoting process is computer- ized and centralized. Several exchange systems recently applied this specific market architec- ture and Euronext is one of the most success- ful examples. Therefore, interest in pure limit- order trading has grown rapidly in recent years. In fact, this market architecture repre- sents an original solution for the fundamental role of the liquidity provision. This study raises the following main questions: (1) how can we measure intraday market li- quidity, (2) do different measures of liquidity provide the same estimation of market liquid- ity, (3) does an intraday pattern of market con- centration exist, and (4) what can we learn from the analysis of intraday market liquidity and concentration. The measurement of the market liquidity is a tricky exercise. The complexity stems from at least two factors: first, the multidimensional nature of market liquidity, and, second, its close relationship with market efficiency. To see the multidimensional nature of market li- quidity, it suffices to evoke its common defini- tion: a liquid market allows trading any volume size demanding an immediate execution and no price impacts. On the other hand, while a liq- uid market implies the absence of market im- pacts, market efficiency instead requires con- tinuous and significant price adjustments to market news. These considerations bring to the second aim of this study, namely the separate measurement of each liquidity dimension. To do this, I survey the liquidity proxies used in the literature and I propose some new proxies. The third aim deals with an empirical issue not yet investigated to my knowledge, namely the analysis of intraday market concentration. This paper is relevant for several reasons. First, this study is based on the statistical analysis of a high-frequency database of the most actively traded Swiss stocks. This infor- mation enables us (1) to estimate several cross-sectional and stock-specific intraday li- © Swiss Society for Financial Market Research (pp. 309–327) FINANCIAL MARKETS AND PORTFOLIO MANAGEMENT / Volume 15, 2001 / Number 3 309