A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices
Type
conference poster
Date Issued
2017-01-06
Author(s)
Abstract
To estimate the bid-ask spread, we propose a new method that resembles the Roll measure (1984) but has some key advantages: it is fully independent of bid-ask bounces and benefits from a wider information set, namely, close, high, and low prices, which are readily available. Assessed against other low-frequency estimates, our estimator 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. Finally, our estimator improves the measurement of systematic liquidity risk and commonality in liquidity for individual stocks and sorted portfolios.
Language
English
Keywords
Market liquidity
Transaction cost
Effective spread
TAQ data
Asset pricing
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Event Title
American Finance Association, Annual Meeting 2017
Event Location
Chicago
Event Date
6-8 January 2017
Eprints ID
250391