A new spread estimator
A new estimator of bid-ask spreads is presented. When the trade direction is known, any estimate of the spread is associated with a unique series of conjectural mid-prices derived by adjusting the observed transaction price by half the estimated spread. It is shown that the covariance of successive...
| Main Authors: | , |
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| Format: | Article |
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Springer Verlag
2015
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| Online Access: | https://eprints.nottingham.ac.uk/47520/ |
| _version_ | 1848797566126260224 |
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| author | Bleaney, Michael Li, Zhiyong |
| author_facet | Bleaney, Michael Li, Zhiyong |
| author_sort | Bleaney, Michael |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | A new estimator of bid-ask spreads is presented. When the trade direction is known, any estimate of the spread is associated with a unique series of conjectural mid-prices derived by adjusting the observed transaction price by half the estimated spread. It is shown that the covariance of successive conjectural mid-price returns is maximised (or least negative) when the estimated spread is equal to the true spread. A search procedure to maximise this covariance may therefore be used to estimate the true spread. The performance of this estimator under various conditions is examined both theoretically and with Monte Carlo simulations. The simulations confirm the theoretical results. The performance of the estimator is good. |
| first_indexed | 2025-11-14T20:05:54Z |
| format | Article |
| id | nottingham-47520 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T20:05:54Z |
| publishDate | 2015 |
| publisher | Springer Verlag |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-475202020-04-29T15:11:18Z https://eprints.nottingham.ac.uk/47520/ A new spread estimator Bleaney, Michael Li, Zhiyong A new estimator of bid-ask spreads is presented. When the trade direction is known, any estimate of the spread is associated with a unique series of conjectural mid-prices derived by adjusting the observed transaction price by half the estimated spread. It is shown that the covariance of successive conjectural mid-price returns is maximised (or least negative) when the estimated spread is equal to the true spread. A search procedure to maximise this covariance may therefore be used to estimate the true spread. The performance of this estimator under various conditions is examined both theoretically and with Monte Carlo simulations. The simulations confirm the theoretical results. The performance of the estimator is good. Springer Verlag 2015-03-05 Article PeerReviewed Bleaney, Michael and Li, Zhiyong (2015) A new spread estimator. Review of Quantitative Finance and Accounting, 47 (1). pp. 179-211. ISSN 1573-7179 Bid-ask spread; Feedback trading; Estimation https://link.springer.com/article/10.1007%2Fs11156-015-0499-z doi:10.1007/s11156-015-0499-z doi:10.1007/s11156-015-0499-z |
| spellingShingle | Bid-ask spread; Feedback trading; Estimation Bleaney, Michael Li, Zhiyong A new spread estimator |
| title | A new spread estimator |
| title_full | A new spread estimator |
| title_fullStr | A new spread estimator |
| title_full_unstemmed | A new spread estimator |
| title_short | A new spread estimator |
| title_sort | new spread estimator |
| topic | Bid-ask spread; Feedback trading; Estimation |
| url | https://eprints.nottingham.ac.uk/47520/ https://eprints.nottingham.ac.uk/47520/ https://eprints.nottingham.ac.uk/47520/ |