Estimation of Linear Regression Models from Bid-Ask Data by a Spread-Tolerant Estimator

Oliver Linton

Annals of Economics and Finance, 2001, vol. 2, issue 1, 237-248

Abstract: We investigate a class of estimators for linear regression models where the dependent variable is subject to bid-ask censoring. Our estimation method is based on a definition of error that is zero when the predictor lies between the actual bid price and ask price, and linear outside this range. Our estimator minimizes a sum of such squared errors; it is nonlinear, and indeed the criterion function itself is non-smooth. We establish its asymptotic properties using the approach of Pakes and Pollard (1989). We compare the estimator with midpoint OLS.

Keywords: Bid-ask spread; Censored data; Linear regression (search for similar items in EconPapers)
JEL-codes: C13 C24 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2001:v:2:i:1:p:237-284

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