The asymmetry of the Amihud illiquidity measure on the European markets: The evidence from Extreme Value Theory

This paper explores the extreme illiquidity for a sample of stocks listed on the European stock markets. The extreme value theory tools such as an extremal index as a measure of illiquidity dependence and a return level as a measure of illiquidity risk are applied. We obtain Amihud illiquidity separately for positive and negative returns and verify if there is an asymmetry in the extreme illiquidity. This study finds that the extreme illiquidity clusters more for negative returns than positive ones. Moreover, the clustering of extreme illiquidity is observed more often on the emerging markets than on the developed ones. For stocks listed on the emerging markets, the risk of extreme illiquidity is higher in the case of negative returns than of positive ones, while for stocks listed on developed markets no such phenomena is found. Our robustness check conducted with volatility over volume as an illiquidity measure confirms results obtained for the extremal indices, but not for the return level.