Efficient Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices
57 Pages Posted: 26 Jul 2021 Last revised: 15 Jun 2022
Date Written: July 23, 2021
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
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