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An estimation of cost-based market liquidity from daily high, low and close prices

Una estimación de la liquidez de mercado basada en los costes a partir de los precios máximo, mínimo y de cierre

Jawad Saleemi ()
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Jawad Saleemi: University of Gujrat, UPV - Universitat Politècnica de València = Universitad Politecnica de Valencia = Polytechnic University of Valencia

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Abstract: In the literature of asset pricing, this paper introduces a new method to estimate the cost-based market liquidity (CBML), that is, the bid-ask spread. The proposed model of spread proxy positively correlates with the examined low-frequency spread proxies for a larger dataset. The introduced approach provides potential implications in important aspects. Unlike in the Roll bid-ask spread model and the CHL bid-ask estimator, the CBML model consistently estimates market liquidity and trading cost for the entire dataset. Additionally, the CBML estimator steadily measures positive spreads, unlike in the CS bid-ask spread model. The construction of the proposed approach is not computationally intensive and can be considered for distinct studies at both market and firm levels.

Keywords: Market Microstructure; Asset Pricing; Bid-Ask Spread; Market Liquidity; Trading Cost; Microestructura del mercado; Fijación de precios de activos; Diferencial de oferta y demanda; Liquidez del mercado; Coste de negociación (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-mst
Note: View the original document on HAL open archive server: https://hal.science/hal-03149324
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Published in Finance, Markets and Valuation, 2020, 6 (2), pp.1-11. ⟨10.46503/VUTL1758⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03149324

DOI: 10.46503/VUTL1758

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