Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets
AbstractUnderstanding the determinants of liquidity costs in agricultural futures markets is hampered by a need to use proxies for the bid-ask spread which are often biased, and by a failure to account for a jointly determined micro-market structure. We estimate liquidity costs and its determinants for the live cattle and hog futures markets using alternative liquidity cost estimators, intraday prices and micro-market information. Volume and volatility are simultaneously determined and significantly related to the bid-ask spread. Daily volume is negatively related to the spread while volatility and volume per transaction display positive relationships. Electronic trading has a significant competitive effect on liquidity costs, particularly in the live cattle market. Results are sensitive to the bid-ask spread measure, with a modified Bayesian method providing estimates most consistent with expectations and the competitive structure found in these markets.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49575.
Date of creation: 2009
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Bayesian estimation; bid-ask spread determinants; liquidity cost; Livestock Production/Industries; Marketing;
Other versions of this item:
- Julieta Frank & Philip Garcia, 2010. "Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(1), pages 209-225.
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