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Estimating Actual Bid-Ask Spreads In Commodity Futures Markets

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  • Bryant, Henry L.
  • Haigh, Michael S.

Abstract

Various bid-ask spread estimators are applied to transaction data from LIFFE commodity futures markets, and the resulting estimates are compared to observed actual bid-ask spreads. Results suggest that actual bid-ask spreads, unlike effective spreads, can be reasonably estimated using transaction data. Estimates of actual spreads gives market participants and researchers some idea of potential transaction costs, and will be useful for assessing the efficiency of electronic trading relative to open-outcry trading. Results indicate that estimators using averages of absolute price changes perform better at estimating actual bid-ask spreads in futures markets than estimators using the covariance of successive price changes

Suggested Citation

  • Bryant, Henry L. & Haigh, Michael S., 2001. "Estimating Actual Bid-Ask Spreads In Commodity Futures Markets," 2001 Annual meeting, August 5-8, Chicago, IL 20707, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea01:20707
    DOI: 10.22004/ag.econ.20707
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