spread {bidask}

Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices

Description

This function implements several methods to estimate bid-ask spreads from open, high, low, and close prices.

Usage

spread(x, width = nrow(x), method = "EDGE", sign = FALSE, na.rm = FALSE)

Arguments

x

xts object with columns named Open, High, Low, Close.

width

integer width of the rolling window to use, or vector of endpoints defining the intervals to use. By default, the whole time series is used to compute a single spread estimate.

method

the estimator(s) to use. See details.

sign

whether signed estimates should be returned.

na.rm

whether missing values should be ignored.

Details

The method EDGE implements the Efficient Discrete Generalized Estimator described in Ardia, Guidotti, & Kroencke (2021).

The methods OHL, OHLC, CHL, CHLO implement the generalized estimators described in Ardia, Guidotti, & Kroencke (2021). They can be combined by concatenating their identifiers, e.g., OHLC.CHLO uses an average of the OHLC and CHLO estimators.

The method AR implements the estimator described in Abdi & Ranaldo (2017). AR2 implements their 2-period version.

The method CS implements the estimator described in Corwin & Schultz (2012). CS2 implements their 2-period version. Both versions are adjusted for overnight (close-to-open) returns as described in the paper.

The method ROLL implements the estimator described in Roll (1984).

Value

Time series of spread estimates. A value of 0.01 corresponds to a spread of 1%.

Note

Please cite Ardia, Guidotti, & Kroencke (2021) when using this package in publication.

References

Ardia, D., Guidotti E., & Kroencke T. A. (2021). Efficient Estimation of Bid-Ask Spreads from Open, High, Low, and Close Prices. Available at SSRN: https://www.ssrn.com/abstract=3892335

Abdi, F., & Ranaldo, A. (2017). A simple estimation of bid-ask spreads from daily close, high, and low prices. Review of Financial Studies, 30 (12), 4437-4480. doi:10.1093/rfs/hhx084

Corwin, S. A., & Schultz, P. (2012). A simple way to estimate bid-ask spreads from daily high and low prices. Journal of Finance, 67 (2), 719-760. doi:10.1111/j.1540-6261.2012.01729.x

Roll, R. (1984). A simple implicit measure of the effective bid-ask spread in an efficient market. Journal of Finance, 39 (4), 1127-1139. doi:10.1111/j.1540-6261.1984.tb03897.x

Examples

# simulate open, high, low, and close prices with spread 1%
x <- sim(spread = 0.01)

# estimate the spread
spread(x)

# by default this is equivalent to
edge(x$Open, x$High, x$Low, x$Close)

# estimate the spread using a rolling window of 21 periods
spread(x, width = 21)

# estimate the spread for each month
ep <- xts::endpoints(x, on = "months")
spread(x, width = ep)

# use multiple estimators
spread(x, method = c("EDGE", "AR", "CS", "ROLL", "OHLC", "OHL.CHL"))