Intraday liquidity dynamics and price ranges in cap-based portfolios

We revisit the liquidity-volatility relationship by considering the information content of price ranges at the intraday level. We combine the literature on range-based volatility estimators with the literature on intraday liquidity to show that liquidity estimation is enhanced when price discovery and uncertainty are characterized by ranges between high, low, opening, and closing (HLOC) prices. Liquidity, volatility, and price ranges are measured on Euronext for three market capitalization classes: Small, mid, and large caps. We find that liquidity is deteriorated by both a greater intensity in the price discovery process (as measured by the opening-close range) and a higher level of price uncertainty (as captured by the high-low range). Realized volatility (RV) does not capture these effects. While RV is rightly recognized as a key measure of price uncertainty, liquidity estimation is further enhanced when we consider HLOC price ranges. We conclude that easy-to-observe HLOC price ranges shed additional light on the dynamics of liquidity and are useful when it comes to quickly evaluating the level of liquidity on the stock market