Efficient Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices

The paper “Efficient Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices” is available via SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3892335

Paper Title:
Efficient Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices

David Ardia, HEC Montreal – Department of Decision Sciences
Emanuele Guidotti, University of Neuchâtel – Institute of Financial Analysis
Tim Alexander Kroencke, University of Neuchâtel – Institute of Financial Analysis

Written: July 23, 2021
Last revised: March 7, 2022


This paper formally derives an efficient estimator of the bid-ask spread from open, high, low, and close prices. The estimator is asymptotically unbiased and optimally combines the full set of price data to minimize the estimation variance. In absence of quote data, it delivers the most accurate estimates of bid-ask spreads theoretically, numerically, and empirically. The estimator is easy to calculate and has a broad applicability in empirical finance.

Ardia, David and Guidotti, Emanuele and Kroencke, Tim Alexander, Efficient Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices (July 23, 2021). Available at SSRN: https://ssrn.com/abstract=3892335 or http://dx.doi.org/10.2139/ssrn.3892335

CRAN Package:
The estimator proposed in this paper (EDGE) is implemented in R and it is available at https://CRAN.R-project.org/package=bidask.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Emanuele Guidotti and is being posted with permission from Emanuele Guidotti. The views expressed in this material are solely those of the author and/or Emanuele Guidotti and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.