Liquidity Screen

Install and import#

npm install fintech-algorithms

import { calculate } from "fintech-algorithms/index-and-benchmark-engineering/governance-and-maintenance/liquidity-screen";

Signature#

calculate(data)

Requires sustained tradability, not a single good month. This package's convention is the median of the supplied monthly turnover ratios against a monthly threshold; the median is deliberate, because a mean is dominated by one spike of activity. The statistic is a median monthly ratio, not an annualized traded value ratio, and providers differ in window length, statistic, and whether they annualize.

Parameters#

Returns#

{ results, passingIds, threshold }

Per-candidate results with the realised median monthly ratio and the monthly threshold applied.

Errors#

• When minimumMedianTurnover is negative, or minimumMonths is less than 1 — throws
• When any record supplies fewer months than minimumMonths, or a negative monthly ratio — throws for the whole call, not only that record

Complexity: time O(n × months), space O(n).

Worked example#

verified This is the worked example published in the article, replayed by the test suite on every run. The output cannot drift.

Input#

{
  "records": [
    {
      "id": "A",
      "monthlyTurnover": [0.18, 0.21, 0.2, 0.17, 0.23, 0.19]
    },
    {
      "id": "B",
      "monthlyTurnover": [0.04, 0.06, 0.05, 0.03, 0.05, 0.04]
    },
    {
      "id": "C",
      "monthlyTurnover": [0.12, 0.11, 0.14, 0.1, 0.13, 0.12]
    }
  ],
  "minimumMedianTurnover": 0.08,
  "minimumMonths": 6
}

Call#

calculate(data)

Returns#

object with 3 fields: results, passingIds, threshold

{
  "results": [
    {
      "id": "A",
      "medianTurnover": 0.195,
      "passes": true
    },
    {
      "id": "B",
      "medianTurnover": 0.045,
      "passes": false
    },
    {
      "id": "C",
      "medianTurnover": 0.12,
      "passes": true
    }
  ],
  "passingIds": ["A", "C", "D"],
  "threshold": 0.08
}

Diagrams#

Calculation flow#

flowchart LR
    A["Point-in-time inputs"] --> B["Validate units and timing"]
    B --> C{"Contract feasible?"}
    C -->|No| D["Reject with reason"]
    C -->|Yes| E["Calculate Liquidity Screen"]
    E --> F["Recompute invariants"]
    F --> G{"Checks pass?"}
    G -->|No| D
    G -->|Yes| H["Publish audited output"]

stateDiagram-v2
    [*] --> FrozenInputs
    FrozenInputs --> Validated: contract passes
    FrozenInputs --> Rejected: missing or infeasible
    Validated --> Calculated: apply named rule
    Calculated --> Audited: invariants pass
    Calculated --> Rejected: invariant fails
    Audited --> Published: version and timestamp recorded
    Published --> Revised: approved correction
    Revised --> FrozenInputs: rebuild from retained source state

How it works#

This page states the contract — how to call it correctly. The article explains the concept: why it works, and where it breaks.

Read the article →

References#

• S&P Dow Jones Indices Index Mathematics Methodology — S&P Dow Jones Indices
• S&P DJI Equity Indices Policies & Practices — S&P Dow Jones Indices
• FTSE Russell Capping Methodology — FTSE Russell, LSEG
• FTSE Russell Index Policy and Methodology Library — FTSE Russell, LSEG
• MSCI Global Investable Market Indexes Methodology Library — MSCI
• MSCI Minimum Volatility Indexes Methodology — MSCI
• S&P Risk Control 2.0 Indices Methodology — S&P Dow Jones Indices
• Principles for Financial Benchmarks — International Organization of Securities Commissions
• Regulation (EU) 2016/1011 — European Union
• Portfolio Selection — Harry Markowitz
• On the Properties of Equally-Weighted Risk Contributions Portfolios — Sébastien Maillard, Thierry Roncalli, and Jérôme Teïletche
• Fundamental Indexation — Robert Arnott, Jason Hsu, and Philip Moore
• FTSE Currency Hedging Methodology Overview — FTSE Russell, LSEG

The rest of the Governance and Maintenance family#

• Eligibility ScreenApplies the qualification rules that decide what may be considered for membership at all — domicile, listing status, share clas…
• Free-Float Factor CalculationDerives the free-float factor from one aggregate restricted-share count, then rounds it up to a band.
• IPO Fast-Entry RuleAdmits a large new listing between scheduled reviews.
• Reconstitution AlgorithmChooses the membership at a scheduled review, using an incumbent buffer so a name hovering at the boundary is not swapped in an…
• Rebalancing AlgorithmTurns a weight change into the trades that implement it, and reports the turnover.
• Turnover Buffer RuleThe buffer in isolation: a band around the cutoff inside which incumbents keep their place.
• Index Replication-Cost EstimatorEstimates what a rebalance costs to implement — spread, market impact and commission.