A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices

Item Type Monograph (Working Paper)
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.

Authors Abdi, Farshid & Ranaldo, Angelo
Language English
Keywords Market liquidity, Transaction cost, Effective spread, TAQ data, Asset pricing
Subjects business studies
finance
Institute/School ?? SoF Pr Inst ??
?? STUDENT ??
?? GFF 1031532 ??
s/bf - Swiss Institute of Banking and Finance
HSG Classification contribution to scientific community
HSG Profile Area None
Refereed No
Date January 2016
Publisher SoF - HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 2016/04
Number of Pages 60
Depositing User Prof. Dr. Angelo Ranaldo
Date Deposited 09 Feb 2016 08:35
Last Modified 18 Feb 2018 01:22
URI: https://www.alexandria.unisg.ch/publications/247263

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Citation

Abdi, Farshid & Ranaldo, Angelo: A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices. School of Finance Working Paper Series, 2016, 2016/04.

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https://www.alexandria.unisg.ch/id/eprint/247263
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