The high–low spread estimator is not well–behaved in commodity markets

Commodity futures;Bid-ask spreads;Transaction costs

Tremacoldi Rossi, Pedro ; Garcia, Philip, ; ,Robe, Michel A, ; ,Serra Devesa, Maria Teresa ; Irwin ; Scott H.

关键词: Commodity futures;    Bid-ask spreads;    Transaction costs;   

Others  :  https://www.ideals.illinois.edu/bitstream/handle/2142/99420/TREMACOLDIROSSI-THESIS-2017.pdf?sequence=1&isAllowed=y

美国|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

In spite of the increasing availability of high-quality data and the possibility of obtaining direct commodity trading costs in recent periods, historical series of transaction costs still require bid-ask spread estimation. In this work, we verify whether the popular high-low spread estimator performs well in commodity markets so that it can be used to construct long-term cost estimates. We find that the estimator suffers both from measurement error increasing in the volatility-to-spread ratio and consistently positive error in a variety of empirical and experimental settings. As the measurement error in the high-low estimator depends on ex-ante knowledge about the usually unobserved true spread level, we conclude that the spread measure is not well-behaved and should be avoided in commodity markets.