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An Implicit Measure Of The Effective Bid‐Ask Spread: A Note

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  • Carolyn W. Chang
  • Jack S. K. Chang

Abstract

We extend Roll's study of the effective bid‐ask spread in an efficient market environment by allowing for serially correlated order arrival and quote behavior. This extension results in a more general effective bid‐ask spread measure, which precludes imaginary spreads and includes Roll's measure as a special case when the serial correlation is zero. This new measure is related to the length of the measurement interval due to the serial correlation, and thus has the potential to explain the previously observed differential between weekly and daily derived spreads.

Suggested Citation

  • Carolyn W. Chang & Jack S. K. Chang, 1993. "An Implicit Measure Of The Effective Bid‐Ask Spread: A Note," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(1), pages 71-75, March.
    • Handle: RePEc:bla:jfnres:v:16:y:1993:i:1:p:71-75
    DOI: 10.1111/j.1475-6803.1993.tb00128.x
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    Cited by:

    1. Ying Jiang & Shamim Ahmed & Xiaoquan Liu, 2017. "Volatility forecasting in the Chinese commodity futures market with intraday data," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 1123-1173, May.

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