Asset liquidity in modern financial markets is a key but elusive concept. A
market is often said to be liquid when the prevailing structure of transactions
provides a prompt and secure link between the demand and supply of assets, thus
delivering low costs of transaction. Providing a rigorous and empirically
relevant definition of market liquidity has, however, provided to be a
difficult task. This paper provides a critical review of the frameworks
currently available for modelling and estimating the market liquidity of
assets. We consider definitions that stress the role of the bid-ask spread and
the estimation of its components that arise from alternative sources of market
friction. In this case, intra-daily measures of liquidity appear relevant for
capturing the core features of a market, and for their ability to describe the
arrival of new information to market participants