This paper proposes a new empirical measure of liquidity, termed
“liquidity delta.” An asset is considered liquid if it can be traded quickly, in
large quantities at low cost with little impact on market price. Trade-off
between asking price and sale intensity, is one of the most common
characteristics of assets. The new measure, liquidity delta, empirically
captures this trade-off. We estimate liquidity delta for sixty major stocks
listed on the Korea Stock Exchange. We demonstrate that liquidity delta is a
useful measure of liquidity, with liquidity level and its variability showing
negative and positive relation, respectively, with the asset's rate of return.
The negative relationship shows premium for lack of liquidity whereas the
positive one shows premium for liquidity risk.