Abstract
Market liquidity is the ability to sell a share at a price close to the prevailing market price. While there are several widely used measures of liquidity, they have limitations in capturing the characteristics of liquidity or in implementing in certain markets. This paper develops a new measure of liquidity, called the Relative Liquidity Ratio, as a ratio of trading intensity to price volatility. Trading intensity captures the time dimension and is a function of relative number of trades and relative volume. Price volatility measures the price dimension and is a function of the average monthly price range and the average trading price. The relative liquidity ratio is applied to a sample of stocks listed in the Colombo Stock Exchange