Estimation of bid-ask spreads in the presence of serial dependence

Xavier Brouty, Matthieu Garcin and Hugo Roccaro

Papers from arXiv.org

Abstract: Starting from a basic model in which the dynamic of the transaction prices is a geometric Brownian motion disrupted by a microstructure white noise, corresponding to the random alternation of bids and asks, we propose moment-based estimators along with their statistical properties. We then make the model more realistic by considering serial dependence: we assume a geometric fractional Brownian motion for the price, then an Ornstein-Uhlenbeck process for the microstructure noise. In these two cases of serial dependence, we propose again consistent and asymptotically normal estimators. All our estimators are compared on simulated data with existing approaches, such as Roll, Corwin-Schultz, Abdi-Ranaldo, or Ardia-Guidotti-Kroencke estimators.

Date: 2024-07, Revised 2025-01
New Economics Papers: this item is included in nep-ecm
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