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

Authors:
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

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

Abstract:

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.

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