학술논문

When Do Low-Frequency Measures Really Measure Effective Spreads? Evidence from Equity and Foreign Exchange Markets.
Document Type
Article
Source
Review of Financial Studies. Oct2023, Vol. 36 Issue 10, p4190-4232. 43p.
Subject
*Spread (Finance)
*Foreign exchange market
*Market volatility
*Liquidity (Economics)
*Stocks (Finance)
*Foreign exchange rates
*Transaction costs
*Market capitalization
Language
ISSN
0893-9454
Abstract
We present evidence that several popular low-frequency measures of effective spread suffer from a volatility-induced bias and that volatility is the primary driver of the variation of these liquidity proxies. Using data for U.S. equities and major foreign exchange rates, we show that the bias arises when the effective spread is small relative to volatility. We document that the bias has become more acute over time and show that volatility-biased measures fail to replicate some well-known results in empirical finance. We conclude by providing guidance on the choice of low-frequency measures in empirical applications. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]