BID-ASK SPREADS IN COMMODITY FUTURES MARKETS

Henry L. Bryant and Michael S. Haigh

No 28587, Working Papers from University of Maryland, Department of Agricultural and Resource Economics

Abstract: Issues of recent interest and controversy regarding bid-ask spreads in commodity futures markets are investigated. First we apply competing spread estimators to open outcry transactions data and compare resulting estimates to observed spreads. This enables market microstructure researchers, regulators, exchange officials, and traders the opportunity to evaluate the usefulness and accuracy of bid-ask estimators in markets that do not report bid and ask data, providing an idea of the "worst-case" transaction costs that are likely to be incurred. We also compare spreads observed before and after trading was automated (and made anonymous) on commodity futures markets, and discover that spreads have generally widened since trading was automated, and that they have an increased tendency to widen in periods of high volatility. Our findings suggest that commodity futures markets have an inherently different character than financial futures markets, and therefore merit separate investigation.

Keywords: Marketing (search for similar items in EconPapers)
Pages: 41
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ags:umdrwp:28587

DOI: 10.22004/ag.econ.28587

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