Amihud Illiquidity Ratio

The Amihud Illiquidity Ratio measures how difficult it is to buy or sell an asset without affecting its price. A higher ratio indicates that even small trades can cause significant price changes, meaning the asset is less liquid. Conversely, a lower ratio suggests the asset can be traded more easily and with less impact on its price. Investors use this ratio to assess the liquidity risk of a security, helping them make informed decisions about trading and investment strategies.