Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets

Julieta Frank and Philip Garcia

American Journal of Agricultural Economics, 2010, vol. 93, issue 1, 209-225

Abstract: Using literature-based measures and a modified Bayesian method specified here, we estimate liquidity costs and their determinants for the live cattle and hog futures markets. Volume and volatility are simultaneously determined and significantly related to the bid-ask spread. Daily volume is negatively related to the spread while volatility and average volume per transaction display positive relationships. Electronic trading has a significant competitive effect on liquidity costs, particularly in the live cattle market. Results are sensitive to the bid-ask spread measure, with our modified Bayesian method providing estimates most consistent with expectations and the competitive structure in these markets. Copyright 2010, Oxford University Press.

Date: 2010
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Working Paper: Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets (2009)
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