A Modified Method for Inferring the Effective Bid‐ask Spread From Security Returns

Based on daily prices (amtliche Kurse) we estimate effective spreads of securities traded at the Berlin Stock Exchange in 1880, 1890, 1900 and 1910. Several extensions of the Roll measure are applied. We find surprisingly tight effective spreads for the historical data, comparable with similar measures of the MDAX and DAX at the end of the 20th century. Copyright Oxford University Press Science+Business Media, LLC 2006

show abstract

Trading Costs in Early Securities Markets: The Case of the Berlin Stock Exchange 1880–1910*

Gehrig

Fohlin

2006

Review of Finance

View full text Add to dashboard Cite

show abstract

Estimation of the effective bid-ask spread on high frequency Danish bond data

Nyholm¹

1999

The European Journal of Finance

View full text Add to dashboard Cite

In this paper the effective bid-ask spread is estimated using 12 high frequency Danish bond samples. A clear-cut MA(1)-model for the mean of the return series, and a GARCH(1,1)-model for the variance, are found. Basically, Roll's model is used, but three different methods of calculating the first-order autocovariance are suggested. Each of these in turn produces three possible ways of estimating the effective bid-ask spread. First, Roll's original autocovariance estimate is used. Second, the autocovariance is calculating using the parameters of an estimated MA(1) model. Third, the autocovariance is obtained from the parameters of a joint MA(1)-GARCH(1,1) model. By means of bootstrapping the standard error of the bid-ask spread estimates are found. It is shown that the gain in efficiency, measured by the relative difference in the standard error of the estimates, is 29% when going from method one to method two, but only 1% when going from method two to method three. These results indicate that the extra gain in efficiency obtained by taking account of the MA(1) structure of the data is noteworthy, but the gain when incorporating the GARCH-effects is negligible.Effective Spread Estimation, Time Series Models,

show abstract

Estimation of the bid/ask spread on Danish stocks, an evaluation of Roll's estimator

Nyholm

1997

Applied Financial Economics

View full text Add to dashboard Cite

This paper presents the first empirical study of the bid/ask spread based on intra-daily transactions data from the Danish stock market. The technique developed by Roll (1984) for inferring the bid/ask spread is implemented and evaluated on samples of data from January, February and March 1993. In particular, since quoted spreads are available, it is possible to make a direct evaluation of the Roll estimator. The conclusion of the paper is twofold. First, the Roll estimator captures a large part of the actual quoted spread. Secondly, the average Danish bid/ask spread is larger than the 0.3% presented by Roll for the US market.

show abstract

scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.

Contact Info

customersupport@researchsolutions.com

10624 S. Eastern Ave., Ste. A-614

Henderson, NV 89052, USA

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Blog Terms and Conditions API Terms Privacy Policy Contact Cookie Preferences Do Not Sell or Share My Personal Information

Made with 💙 for researchers

Part of the Research Solutions Family.

A Modified Method for Inferring the Effective Bid‐ask Spread From Security Returns

Cited by 4 publications

References 11 publications

Trading Costs in Early Securities Markets: The Case of the Berlin Stock Exchange 1880–1910*

Trading Costs in Early Securities Markets: The Case of the Berlin Stock Exchange 1880–1910*

Estimation of the effective bid-ask spread on high frequency Danish bond data

Estimation of the bid/ask spread on Danish stocks, an evaluation of Roll's estimator

Contact Info

Product

Resources

About