Abstract
References
- Bollerslev, T., & Melvin, M. 1994, “Bid—ask spreads and volatility in the foreign exchange market: An empirical analysis”, Journal of International Economics, 36(3), 355-372.
- Chung, K. H., & Zhang, H. 2014, “A simple approximation of intraday spreads using daily data”, Journal of Financial Markets, 17(1), 94–120.
- Corwin, S. A., & Schultz, P. 2012, “A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices”, Journal of Finance, 67(2), 719–760.
- Fong, K. Y. L., Holden, C. W., & Trzcinka, C. A. 2014, “What Are The Best Liquidity Proxies For Global Research?”, Indiana University Working Paper.
- Goyenko, R. Y., Holden, C. W., & Trzcinka, C. A. 2009, “Do liquidity measures measure liquidity?”, Journal of Financial Economics, 92(2), 153–181.
- Groebner, D. F., Shannon, P. W., Fry, P. C., & Smith, K. D. 2008, “Business Statistics: A Decision-Making Approach”, 7th Edition, Prentice-Hall.
- Hasbrouck, J. 2004, “Liquidity in the futures pits: Inferring market dynamics from incomplete data”, Journal of Financial and Quantitative Analysis, 39, 305–326.
- Hasbrouck, J. 2009, “Trading costs and returns for U.S. equities: Estimating effective costs from daily data”, Journal of Finance, 65, 1445-1477.
- Holden, C. W. 2009, “New low-frequency spread measures”, Journal of Financial Markets, 12(4), 778–813.
- Holden, C. W. 2014, “The Empirical Analysis of Liquidity”, Foundations and Trends in Finance, 8(4), 263–365.
- Holden, C. W., & Jacobsen, S. 2014, “Liquidity measurement problems in fast, competitive markets: Expensive and cheap solutions”, Journal of Finance, 69(4), 1747–1785.
- Lesmond, D., Ogden, J., & Trzcinka, C. A. 1999, “A New Estimate of Transaction Costs”, Review of Financial Studies, 12(5), 1113–41.
- Lesmond, D. 2005, “Liquidity of emerging markets”, Journal of Financial Economics, 77(2), 411–452.
- Madhavan, A. 2000, “Market microstructure: A survey”, Journal of Financial Markets, 3(3), 205–258.
- Roll, R. 1984, “A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Model”, Journal of Finance, 39(4), 1127–1139.
- Schestag, R., Schuster, P., & Uhrig-Homburg M. 2016, Measuring Liquidity in Bond Markets, Review of Financial Studies, 29-5, 1170-1219.
Abstract
We
analyze the performance of five different methods appearing in the market
microstructure literature in predicting effective and quoted bid-ask spreads
(Roll, LOT Mixed, Effective Tick, High-Low and Closing Percent Quoted Spread
proxies). With data from index futures, currency futures and gold futures
traded in Borsa Istanbul and taking percent effective and percent quoted
spreads obtained from intraday trade and quote data as benchmarks, we calculate
and compare the correlations and root mean square errors of the spread
measures. Results show that none of the proxies is successful enough in
estimating effective or quoted spread although under normal market conditions,
Effective Tick appears to perform best
Keywords
References
- Bollerslev, T., & Melvin, M. 1994, “Bid—ask spreads and volatility in the foreign exchange market: An empirical analysis”, Journal of International Economics, 36(3), 355-372.
- Chung, K. H., & Zhang, H. 2014, “A simple approximation of intraday spreads using daily data”, Journal of Financial Markets, 17(1), 94–120.
- Corwin, S. A., & Schultz, P. 2012, “A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices”, Journal of Finance, 67(2), 719–760.
- Fong, K. Y. L., Holden, C. W., & Trzcinka, C. A. 2014, “What Are The Best Liquidity Proxies For Global Research?”, Indiana University Working Paper.
- Goyenko, R. Y., Holden, C. W., & Trzcinka, C. A. 2009, “Do liquidity measures measure liquidity?”, Journal of Financial Economics, 92(2), 153–181.
- Groebner, D. F., Shannon, P. W., Fry, P. C., & Smith, K. D. 2008, “Business Statistics: A Decision-Making Approach”, 7th Edition, Prentice-Hall.
- Hasbrouck, J. 2004, “Liquidity in the futures pits: Inferring market dynamics from incomplete data”, Journal of Financial and Quantitative Analysis, 39, 305–326.
- Hasbrouck, J. 2009, “Trading costs and returns for U.S. equities: Estimating effective costs from daily data”, Journal of Finance, 65, 1445-1477.
- Holden, C. W. 2009, “New low-frequency spread measures”, Journal of Financial Markets, 12(4), 778–813.
- Holden, C. W. 2014, “The Empirical Analysis of Liquidity”, Foundations and Trends in Finance, 8(4), 263–365.
- Holden, C. W., & Jacobsen, S. 2014, “Liquidity measurement problems in fast, competitive markets: Expensive and cheap solutions”, Journal of Finance, 69(4), 1747–1785.
- Lesmond, D., Ogden, J., & Trzcinka, C. A. 1999, “A New Estimate of Transaction Costs”, Review of Financial Studies, 12(5), 1113–41.
- Lesmond, D. 2005, “Liquidity of emerging markets”, Journal of Financial Economics, 77(2), 411–452.
- Madhavan, A. 2000, “Market microstructure: A survey”, Journal of Financial Markets, 3(3), 205–258.
- Roll, R. 1984, “A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Model”, Journal of Finance, 39(4), 1127–1139.
- Schestag, R., Schuster, P., & Uhrig-Homburg M. 2016, Measuring Liquidity in Bond Markets, Review of Financial Studies, 29-5, 1170-1219.
Details
| Journal Section | Articles |
|---|---|
| Authors | |
| Publication Date | September 30, 2016 |
| Published in Issue | Year 2016 Volume: 3 Issue: 3 |
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