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Bid‐Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets
Author(s) -
Frank Julieta,
Garcia Philip
Publication year - 2011
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aaq116
Subject(s) - volatility (finance) , bid price , market liquidity , bid–ask spread , futures contract , futures market , economics , transaction cost , ask price , econometrics , financial economics , market microstructure , monetary economics , business , microeconomics , finance , order (exchange)
Using literature‐based measures and a modified Bayesian method specified here, we estimate liquidity costs and their determinants for the live cattle and hog futures markets. Volume and volatility are simultaneously determined and significantly related to the bid‐ask spread. Daily volume is negatively related to the spread while volatility and average volume per transaction display positive relationships. Electronic trading has a significant competitive effect on liquidity costs, particularly in the live cattle market. Results are sensitive to the bid‐ask spread measure, with our modified Bayesian method providing estimates most consistent with expectations and the competitive structure in these markets.