Measuring the cost of liquidity in agricultural futures markets: Conventional and Bayesian approaches
AbstractEstimation of liquidity costs in agricultural futures markets is challenging because bid-ask spreads are usually not observed. Spread estimators that use transaction data are available, but little agreement exists on their relative accuracy and performance. We evaluate four conventional and a recently proposed Bayesian estimators using simulated data based on Rollâs standard liquidity cost model. The Bayesian estimator tracks Rollâs model relatively well except when the level of noise in the market is large. We derive an improved estimator that seems to have a higher performance even under high levels of noise which is common in agricultural futures markets. We also compute liquidity costs using data for hogs and cattle futures contracts trading on the Chicago Mercantile Exchange. The results obtained for market data are in line with the findings using simulated data.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by International Association of Agricultural Economists in its journal Agricultural Economics.
Volume (Year): 42 (2011)
Issue (Month): (November)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0169-5150
More information through EDIRC
Other versions of this item:
- Frank, Julieta & Garcia, Philip, 2007. "Measuring Liquidity Costs in Agricultural Futures Markets," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37572, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
- Frank, Julieta & Garcia, Philip, 2006. "Estimating Liquidity Costs in Agricultural Futures Markets using Bayesian Methods," 2006 Annual meeting, July 23-26, Long Beach, CA 21331, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Choi, J. Y. & Salandro, Dan & Shastri, Kuldeep, 1988. "On the Estimation of Bid-Ask Spreads: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(02), pages 219-230, June.
- Thompson, S. & Waller, M.L., 1988. "Determinants Of Liquidity Costs In Commodity Furures Markets," Papers 172, Columbia - Center for Futures Markets.
- Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June.
- Ferguson, Michael F & Mann, Steven C, 2001. "Execution Costs and Their Intraday Variation in Futures Markets," The Journal of Business, University of Chicago Press, vol. 74(1), pages 125-60, January.
- Thompson, Sarahelen R. & Waller, Mark L., 1987. "The Execution Cost of Trading in Commodity Futures Markets," Food Research Institute Studies, Stanford University, Food Research Institute, issue 02.
- Thompson, Sarahelen R. & Eales, James S. & Seibold, David, 1993. "Comparison Of Liquidity Costs Between The Kansas City And Chicago Wheat Futures Contracts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December.
- Frank, Julieta & Garcia, Philip, 2008. "Market Depth in Lean Hog and Live Cattle Futures Markets," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37613, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.