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Semiparametric identification of the bid–ask spread in extended Roll models

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  • Chen, Xiaohong
  • Linton, Oliver
  • Yi, Yanping

Abstract

This paper provides new identification results for the bid–ask spread and the nonparametric distribution of the latent fundamental price increments (εt) from the observed transaction prices alone. The results are established via the characteristic function approach, and hence allow for discrete or continuous εt and the observed price increments do not need to have any finite moments. Constructive identification (and overidentification) results are established first in the basic Roll (1984) model, and then in various extended Roll models, including general unbalanced order flow, serially dependent latent trade direction indicators, adverse selection, random spread and a multivariate Roll model.

Suggested Citation

  • Chen, Xiaohong & Linton, Oliver & Yi, Yanping, 2017. "Semiparametric identification of the bid–ask spread in extended Roll models," Journal of Econometrics, Elsevier, vol. 200(2), pages 312-325.
    • Handle: RePEc:eee:econom:v:200:y:2017:i:2:p:312-325
    DOI: 10.1016/j.jeconom.2017.06.013
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    References listed on IDEAS

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    Cited by:

    1. Chen, Xiaohong & Linton, Oliver & Schneeberger, Stefan & Yi, Yanping, 2019. "Semiparametric estimation of the bid–ask spread in extended roll models," Journal of Econometrics, Elsevier, vol. 208(1), pages 160-178.
    2. Jarosław Duda & Henryk Gurgul & Robert Syrek, 2020. "Modelling bid-ask spread conditional distributions using hierarchical correlation reconstruction," Statistics in Transition New Series, Polish Statistical Association, vol. 21(5), pages 99-118, December.

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    More about this item

    Keywords

    Bid–ask spread; Roll model; Semiparametric identification; Latent variables;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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