Liquidity Assessment Model!

Dear Reader,

At one of my previous jobs I developed a Liquidity Assessment Model, to gauge the liquidity of stocks traded on the Bulgarian Stock Exchange. The essence of the model can be easily applied to gauging the liquidity of any stock traded on an exchange worldwide

Here I am going to share the essence of this Liquidity Assessment Model(The Model). Basically the Model is a scoring model. It has five scoring categories for which it gives a score from 1 to 3. The first category is whether the stock is in the most narrow stock market index in Bulgaria - SOFIX. Then the stock gets a score of 3 (three) in the model. If the stock is in the broader BG TR30 the stock gets a score 2. If the stock is a constituent of the broadest index BGBX40 traded on the Bulgarian Stock Exchange, than the stock gets a score of 1(one). And finally if the stock is not a constituent of some of the stock market indices on the Bulgarian Stock Exchange, the stock gets a score of 0 (zero). If the stock paid out a dividend in the last either calendar or trailing year the stock gets 1, and if it paid out no dividend the stock gets a score  0. And finally I use data downloaded from Bloomberg on price and number of traded units of the particular stock. If  there are less than 30 000 BGN(Bulgarian lev - the currency in Bulgaria) volume(price times number of traded stock units) traded in the last trailing month the stock gets a 0. If there are between 30 000 and 50 000 BGN traded the stock gets a 1, and if there is volume above 50 000 BGN traded, the stock gets a score of 2. Since this was at one of my previous jobs, I must admit I am not entirely certain whether the aforementioned scale was  below 30 000 BGN, between 30 000 and  50 000 BGN and above 50 000 BGN. The numbers could have been lower, but the idea is clear. And finally the scores on the 5 mentioned criteria(SOFIX, BG TR30 or BGBX40 membership, paid out dividend and BGN volume traded) are weighted with scores between 0 and 1, which add up to one. I do not remember the exact numbers, but the weights for the five criteria SOFIX, BG TR30 or BGBX40 membership, paid out dividend and BGN volume traded were something like 0.25, 0.20, 0.15, 0.15, 0.25 respectively. Than, the thus calculated scores for all the stocks that are being watched are ranked from highest to lowest score. The median is established. Stocks with scores above the median of the ranked by liquidity score stocks are considered liquid, stocks with liquidity scores below the median are considered illiquid. The higher one goes in the table the more liquid is the stock. The lower one goes, the less liquid is the stock.

As stated earlier, the Liquidity Assessment Model described above prepared by myself, Petar Vladimirov Posledovich, can be easily applied to any stock traded on an exchange throughout the entire world. Some minor modifications may be necessary in certain cases.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently! Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is as is.

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich