A Simple Approximation of Intraday Spreads Using Daily Data
Kee H. Chung
State University of New York at Buffalo - School of Management
Rochester Institute of Technology (RIT) - Saunders College of Business
March 21, 2013
Journal of Financial Markets, Forthcoming
This study examines the relation between the bid-ask spread from the daily CRSP data and the bid-ask spread from the intraday TAQ data. We show that the CRSP-based spread is highly correlated with the TAQ-based spread across stocks using data from 1993 through 2009. The simple CRSP-based spread provides a better approximation of the TAQ-based spread than all other low-frequency liquidity measures in cross-sectional settings. However, the CRSP-based spread is highly correlated with the TAQ spread in time-series settings only for NASDAQ stocks. Overall, our results suggest that the simple CRSP-based spread could be used in lieu of the TAQ-based spread in academic research that focuses on cross-sectional analysis.
Number of Pages in PDF File: 41
Keywords: Bid-ask spreads, TAQ, CRSP, Market liquidity, Information asymmetry, Low-frequency liquidity measures
JEL Classification: G12, G20, G30
Date posted: February 28, 2009 ; Last revised: May 27, 2013
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