An empirical comparison of quoted and implied bid-ask spreads for futures contracts
An empirical comparison of quoted and implied bid-ask spreads for futures contracts
This paper investigates the performance of a range of alternative measures of quoted and implied bid–ask spreads on futures contracts, using a complete record of all quotes and trades. Accurate calibration of bid–ask spreads is important for many applications, including tests of market efficiency and assessment of market microstructure models. The results show that the transactions based spread measures are biased estimates of quoted and effective spreads, which illustrates the need for considered implementation of such measures. Similar intraday behaviour is shown by the different measures, with wide spreads at the open and narrow spreads at the close under a competing market maker environment.
bid–ask spreads, trading costs, market microstructure
81-99
Ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
Thomas, Stephen
3ebf2346-25f1-4f19-b854-7a7da0cee9ca
2002
Ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
Thomas, Stephen
3ebf2346-25f1-4f19-b854-7a7da0cee9ca
Ap Gwilym, Owain and Thomas, Stephen
(2002)
An empirical comparison of quoted and implied bid-ask spreads for futures contracts.
Journal of International Financial Markets, Institutions and Money, 12 (1), .
(doi:10.1016/S1042-4431(01)00047-6).
Abstract
This paper investigates the performance of a range of alternative measures of quoted and implied bid–ask spreads on futures contracts, using a complete record of all quotes and trades. Accurate calibration of bid–ask spreads is important for many applications, including tests of market efficiency and assessment of market microstructure models. The results show that the transactions based spread measures are biased estimates of quoted and effective spreads, which illustrates the need for considered implementation of such measures. Similar intraday behaviour is shown by the different measures, with wide spreads at the open and narrow spreads at the close under a competing market maker environment.
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Published date: 2002
Additional Information:
ap Gwilym, O. and S. Thomas- Editor -->
Keywords:
bid–ask spreads, trading costs, market microstructure
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Local EPrints ID: 35784
URI: http://eprints.soton.ac.uk/id/eprint/35784
ISSN: 1042-4431
PURE UUID: 3c31cbb8-1045-4225-a846-cd1cc37d5785
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Date deposited: 22 May 2006
Last modified: 15 Mar 2024 07:54
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Author:
Owain Ap Gwilym
Author:
Stephen Thomas
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