Alternative Estimators for the Effective Spread Derived from High-Frequency Data

Joanna Olbrys and Michał Mursztyn ()
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Michał Mursztyn: Bialystok University of Technology

Chapter Chapter 13 in Effective Investments on Capital Markets, 2019, pp 177-188 from Springer

Abstract: Abstract According to the literature, various proxies for the effective bid/ask spread are utilized by researchers. They can be estimated from low- or high-frequency data. In this study, three alternative estimators for the effective spread derived from high-frequency data are investigated. We analyse the basic version of percentage effective spread and two modified versions of the Roll’s estimator for the effective spread. Data set contains intraday data rounded to the nearest second for 86 Warsaw Stock Exchange (WSE) traded companies, in the period from January 2005 to December 2016. We test distributional properties, linear and nonlinear dependences, as well as stationarity of the analysed daily time series. Moreover, the research hypothesis concerning the statistical significance of correlations between daily values of various effective spread estimates is tested. Furthermore, the study provides robustness analyses of the obtained results with respect to the whole sample and three consecutive subsamples, covering the pre-crisis, crisis and post-crisis periods. The empirical findings confirm significant relationships between alternative proxies for the effective spread and turn out to be robust to the choice of the period.

Keywords: Effective bid/ask spread; Roll’s estimator; Intraday data; Warsaw Stock Exchange (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-030-21274-2_13

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DOI: 10.1007/978-3-030-21274-2_13

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