New Low-Frequency Spread Measures
2009, Journal of Financial Markets
Craig W. Holden
I develop new spread proxies that pick up on three attributes of the low-frequency (daily) data: (1) price clustering,(2)serial price covariance accounting for midpoint prices on no-trade days, and (3) the quoted spread that is available on no-trade days. I develop and empirically test two different approaches: an integrated model and combined models. I test both new and existing low-frequency spread measures relative to two high-frequency benchmarks (percent effective spread and percent quoted spread) on three performance dimensions: (1) higher individual firm correlation with the benchmarks, (2) higher portfolio correlation with the benchmarks, and (3) lower distance relative to the benchmarks. I find that on all three performance dimensions the new integrated model and the new combined model do significantly better than existing low-frequency spread proxies.
Holden, Craig W. (2009), “New Low-Frequency Spread Measures,” Journal of Financial Markets, Vol. 12, pp. 778-813.
New Low-Frequency Spread Measures (840 KB)