A Simple Approximation of Intraday Spreads Using Daily Data

Chung, Kee H.; Zhang, Hao

doi:10.2139/ssrn.1346363

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A Simple Approximation of Intraday Spreads Using Daily Data

Journal of Financial Markets, Forthcoming

41 Pages Posted: 28 Feb 2009 Last revised: 15 May 2013

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business

Date Written: March 21, 2013

Abstract

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.

Keywords: Bid-ask spreads, TAQ, CRSP, Market liquidity, Information asymmetry, Low-frequency liquidity measures

JEL Classification: G12, G20, G30

Suggested Citation: Suggested Citation

Chung, Kee H. and Zhang, Hao, A Simple Approximation of Intraday Spreads Using Daily Data (March 21, 2013). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1346363 or http://dx.doi.org/10.2139/ssrn.1346363