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A MODIFIED METHOD FOR INFERRING THE EFFECTIVE BID‐ASK SPREAD FROM SECURITY RETURNS
Author(s) -
Hsia ChiCheng,
Fuller Beverly R.,
Kao G. Wenchi
Publication year - 1994
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1994.tb00316.x
Subject(s) - ask price , econometrics , bid price , equivalence (formal languages) , sample (material) , covariance , economics , statistics , financial economics , mathematics , computer science , actuarial science , finance , chemistry , discrete mathematics , chromatography
This paper presents a modified method for inferring the effective bid‐ask spread from security returns in an eMicient market. The Modified Method removes from security returns the systematic effect of market movements and makes use of the equivalence properties of the moving average process and serial covariance function. The Modified Method is tested with the CRSP daily, weekly, and monthly returns data. The results show that the spread estimates are non‐negative and sample time‐interval independent. The results are compared with those of Roll (1984) and Amihud and Mendelson (1986).