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New low-frequency spread measures

  • Holden, Craig W.
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    I develop new spread proxies that pick up on three attributes of the low-frequency (daily) data: (1) price clustering, (2) serial price covariance accounting for midpoint prices on no-trade days, and (3) the quoted spread that is available on no-trade days. I develop and empirically test two different approaches: an integrated model and combined models. I test both new and existing low-frequency spread measures relative to two high-frequency benchmarks (percent effective spread and percent quoted spread) on three performance dimensions: (1) higher individual firm correlation with the benchmarks, (2) higher portfolio correlation with the benchmarks, and (3) lower distance relative to the benchmarks. I find that on all three performance dimensions the new integrated model and the new combined model do significantly better than existing low-frequency spread proxies.

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    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 12 (2009)
    Issue (Month): 4 (November)
    Pages: 778-813

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    Handle: RePEc:eee:finmar:v:12:y:2009:i:4:p:778-813
    Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

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