Finance, Markets and Valuation
Vol. 6, Num. 2, July-December 2020, 1--11
Title: An estimation of cost-based market liquidity from daily high, low and close prices
Authors: Jawad Saleemi
DOI: 10.46503/VUTL1758
Abstract:
In the literature of asset pricing, this paper introduces a new method to estimate the cost-based market liquidity (CBML), that is, the bid-ask spread. The proposed model of spread proxy positively correlates with the examined low-frequency spread proxies for a larger dataset. The introduced approach provides potential implications in important aspects. Unlike in the Roll bid-ask spread model and the CHL bid-ask estimator, the CBML model consistently estimates market liquidity and trading cost for the entire dataset. Additionally, the CBML estimator steadily measures positive spreads, unlike in the CS bid-ask spread model. The construction of the proposed approach is not computationally intensive and can be considered for distinct studies at both market and firm levels.
Keywords: Market Microstructure; Asset Pricing; Bid-Ask Spread; Market Liquidity; Trading Cost
