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Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets

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  • Frank, Julieta
  • Garcia, Philip

Abstract

Understanding 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.

Suggested Citation

  • Frank, Julieta & Garcia, Philip, 2009. "Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49575, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea09:49575
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    References listed on IDEAS

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    1. Hasbrouck, Joel, 2004. "Liquidity in the Futures Pits: Inferring Market Dynamics from Incomplete Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(02), pages 305-326, June.
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    7. Thompson, S. & Waller, M.L., 1988. "Determinants Of Liquidity Costs In Commodity Furures Markets," Papers 172, Columbia - Center for Futures Markets.
    8. Thompson, Sarahelen R. & Eales, James S. & Seibold, David, 1993. "Comparison Of Liquidity Costs Between The Kansas City And Chicago Wheat Futures Contracts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December.
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    Cited by:

    1. Irwin, Scott H. & Sanders, Dwight R., 2012. "Financialization and Structural Change in Commodity Futures Markets," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 44(03), pages 371-396, August.
    2. Rashmi Ranjan Paital & Naresh Kumar Sharma, 2016. "Bid-Ask Spreads, Trading Volume and Return Volatility: Intraday Evidence from Indian Stock Market," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 4(1), pages 24-40.
    3. Janzen, Joseph P. & Carter, Colin A. & Smith, Aaron D., 2012. "The Quality of Price Discovery and the Transition to Electronic Trade: The Case of Cotton Futures," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124994, Agricultural and Applied Economics Association.
    4. Janzen, Joseph P. & Adjemian, Michael K., 2016. "Estimating the Location of World Wheat Price Determination," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235838, Agricultural and Applied Economics Association.

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    Keywords

    Bayesian estimation; bid-ask spread determinants; liquidity cost; Livestock Production/Industries; Marketing;

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