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

Farshid Abdi and Angelo Ranaldo

No 1604, Working Papers on Finance from University of St. Gallen, School of Finance

Keywords: Market Liquidity; Transaction Cost; Effective Spread; TAQ Data; Asset Pricing (search for similar items in EconPapers)
JEL-codes: G12 G15 G20 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2016-01, Revised 2017-04
New Economics Papers: this item is included in nep-ecm and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2016:04

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