SIMPLE NONPARAMETRIC ESTIMATORS FOR THE BID-ASK SPREAD IN THE ROLL MODEL By
نویسندگان
چکیده
We propose new methods for estimating the bid-ask spread from observed transaction prices alone. Our methods are based on the empirical characteristic function instead of the sample autocovariance function like the method of Roll (1984). As in Roll (1984), we have a closed form expression for the spread, but this is only based on a limited amount of the model-implied identification restrictions. We also provide methods that take account of more identification information. We compare our methods theoretically and numerically with the Roll method as well as with its best known competitor, the Hasbrouck (2004) method, which uses a Bayesian Gibbs methodology under a Gaussian assumption. Our estimators are competitive with Roll’s and Hasbrouck’s when the latent true fundamental return distribution is Gaussian, and perform much better when this distribution is far from Gaussian. Our methods are applied to the Emini futures contract on the S&P 500 during the Flash Crash of May 6, 2010. Extensions to ∗Department of Economics, Yale University, PO Box 208281, New Haven CT 06520-8281, USA. E-mail: [email protected]. Web Page: http://cowles.econ.yale.edu/faculty/chen.htm. †Department of Economics, University of Cambridge, Austin Robinson Building, Sidgwick Avenue, Cambridge CB3 9DD, United Kingdom, E-mail: [email protected]. Web Page: http://www.oliverlinton.me.uk. ‡Department of Economics, Yale University, New Haven CT 06520-8281, USA. E-mail: [email protected]. School of Economics, Shanghai University of Finance and Economics (SUFE), Shanghai, 200433, China. E-mail: [email protected].
منابع مشابه
The Use Of Financial Ratios as Measures Of Risk In The Determination Of The Bid- Ask Spread In Tehran Stock Exchange
متن کامل
A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market
In an efficient market, the fundamental value of a security fluctuates randomly. However, trading costs induce negative serial dependence in successive observed market price changes. In fact, given market efficiency, the effective bid-ask spread can be measured by
متن کاملEvaluation of the association between company performance and Iran’s stock market liquidity
This research studies the companies’ effectiveness and performance relationship with stock market liquidity in Tehran Stock Exchange during 2010-2015. Simultaneously, in the study, the three indicators: return on assets, return on investment and Tobin's Q ratio were applied as a measure of the performance and bid-ask spread as a measure of liquidity, bid-ask spread to the stock market. This res...
متن کاملNew Bid-Ask Spread Estimators from Daily High and Low Prices
Estimating trading costs in the absence of recorded data is a problem that continues to puzzle financial market researchers. We address this challenge by introducing two low frequency bid-ask spread estimators using daily high and low transaction prices. The range of mid-prices is an increasing function of the sampling interval, while the bid-ask spread and the relationship between trading dire...
متن کاملDifferenced-Based Double Shrinking in Partial Linear Models
Partial linear model is very flexible when the relation between the covariates and responses, either parametric and nonparametric. However, estimation of the regression coefficients is challenging since one must also estimate the nonparametric component simultaneously. As a remedy, the differencing approach, to eliminate the nonparametric component and estimate the regression coefficients, can ...
متن کامل