Measuring the cost of liquidity in agricultural futures markets: Conventional and Bayesian approaches
AbstractEstimation of liquidity costs in futures markets is challenging because bid-ask spreads are usually not observed. Several estimators of liquidity costs exist that use transaction data, but there is little agreement on their relative accuracy and usefulness, and their performance has been questioned. We use a Bayesian method proposed by Hasbrouck which possesses conceptually desirable properties to estimate liquidity costs of six agricultural future contracts. The method builds on RollÂ's model and uses Markov Chain Monte Carlo estimation. Our Bayesian estimates are lower than more traditional estimates and as anticipated decrease even more when more realistic assumptions such as discreteness are incorporated. The findings demonstrate the need for further research to clarify the usefulness and accuracy of the procedure.
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Bibliographic InfoArticle provided by International Association of Agricultural Economists in its journal Agricultural Economics.
Volume (Year): 42 (2011)
Issue (Month): (November)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0169-5150
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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, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management 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, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 21331, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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