A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices
Series
School of Finance Working Paper Series
Type
working paper
Date Issued
2016-01
Author(s)
Abstract
We propose a new method to estimate the bid-ask spread when quote data are not available. Compared to other low-frequency estimates, it utilizes a wider information set, namely, close, high, and low prices, which are readily available. In the absence of end-of-day quote data, it generally provides the highest cross-sectional and average time-series correlations with the TAQ effective spread benchmark. Moreover, it delivers the most accurate estimates for less liquid stocks. Our estimator has many potential applications including an accurate measurement of transaction cost, systematic liquidity risk, and commonality in liquidity for U.S. stocks dating back almost one century.
Language
English
Keywords
Market liquidity
Transaction cost
Effective spread
TAQ data
Asset pricing
HSG Classification
contribution to scientific community
HSG Profile Area
None
Refereed
No
Publisher
SoF - HSG
Publisher place
St. Gallen
Number
2016/04
Pages
60
Subject(s)
Eprints ID
247263
File(s)![Thumbnail Image]()
Name
16_04_Ranaldo et al_A Simple Estimation of Bid-Ask Spreads.pdf
Size
1.47 MB
Format
Adobe PDF
Checksum (MD5)
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