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

62 Pages Posted: 26 Jul 2021

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

We propose a novel estimation procedure of bid-ask spreads from open, high, low, and close prices. Our estimator is asymptotically unbiased and optimally combines the full set of price data to minimize the estimation variance. When quote data are not available, our estimator generally delivers the most accurate estimates of effective bid-ask spreads numerically and empirically. The estimator is derived under permissive assumptions that allow for stylized facts typically observed in real market data, is easy to implement, and can be applied to liquid and illiquid market segments, both in low and high frequency.

Keywords: market liquidity, bid-ask spread, transaction cost, asset pricing

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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