A Simple Way to Estimate to Bid-Ask Spreads from Daily Prices: A Case Study of Bangladesh
23 Pages Posted: 23 Feb 2012 Last revised: 13 Oct 2012
Date Written: January 3, 2011
In the present paper we use the daily high and low prices of stocks to compute Corwin’s estimator of the bid-ask spread (in this case high-low spread also) for stocks traded in the Dhaka Stock Exchange (DSE). DSE is the primary stock exchange in Bangladesh. We use data for March 28th, 2010 to November 14th, 2010. We also estimate spread with Roll’s (1984) covariance based bid-ask spread and compare it with the high-low spread. Then we regress these measures of spread in DSE against three variables: daily no of stocks traded, volume, and value of stocks traded. In the last step of the study, we perform a test of efficiency of DSE based on Stoll’s (1989) approach. Evidence from this test shows that the DSE is not weak-form efficient.
Keywords: Dhaka Stock Exchange, High-Low Spread
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