A Simple Way to Estimate Bid‐Ask Spreads from Daily High and Low Prices
2012; Wiley; Volume: 67; Issue: 2 Linguagem: Inglês
10.1111/j.1540-6261.2012.01729.x
ISSN1540-6261
AutoresShane A. Corwin, Paul Schultz,
Tópico(s)Complex Systems and Time Series Analysis
ResumoABSTRACT We develop a bid‐ask spread estimator from daily high and low prices. Daily high (low) prices are almost always buy (sell) trades. Hence, the high–low ratio reflects both the stock's variance and its bid‐ask spread. Although the variance component of the high–low ratio is proportional to the return interval, the spread component is not. This allows us to derive a spread estimator as a function of high–low ratios over 1‐day and 2‐day intervals. The estimator is easy to calculate, can be applied in a variety of research areas, and generally outperforms other low‐frequency estimators.
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