Efficient Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices

57 Pages Posted: 26 Jul 2021 Last revised: 15 Jun 2022

See all articles by David Ardia

David Ardia

HEC Montreal - Department of Decision Sciences

Emanuele Guidotti

University of Neuchâtel - Institute of Financial Analysis

Tim Alexander Kroencke

University of Neuchatel - Institute of Financial Analysis

Date Written: July 23, 2021

Abstract

This paper formally derives an efficient estimator of the bid-ask spread from open, high, low, and close prices. The estimator is asymptotically unbiased and optimally combines the full set of price data to minimize the estimation variance. In absence of quote data, it delivers the most accurate estimates of bid-ask spreads theoretically, numerically, and empirically. The estimator is easy to calculate and has a broad applicability in empirical finance. We discuss implications for applied research.

Keywords: bid-ask spread, transaction costs, asset pricing, trading frictions, market liquidity

JEL Classification: C10, C13, G12, G14

Suggested Citation

Ardia, David and Guidotti, Emanuele and Kroencke, Tim Alexander, Efficient Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices (July 23, 2021). Available at SSRN: https://ssrn.com/abstract=3892335 or http://dx.doi.org/10.2139/ssrn.3892335

David Ardia

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Emanuele Guidotti (Contact Author)

University of Neuchâtel - Institute of Financial Analysis ( email )

Rue Abram-Louis-Breguet 2
Neuchâtel, 2000
Switzerland

Tim Alexander Kroencke

University of Neuchatel - Institute of Financial Analysis ( email )

Pierre-a-Mazel,7
Neuchatel, CH-2000
Switzerland

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