Arbeitspapier
Estimation of trading costs: Trade indicator models revisited
It is a stylized fact that trade indicator models (e.g. Madhavan, Richardson, and Roomans (1997) and Huang and Stoll (1997)) underestimate the bid-ask spread. We argue that this negative bias is due to an endogeneity problem which is caused by a negative correlation between the arrival of public information and trade direction. In our sample (the component stocks of the DAX30 index) we find that the the average correlation between these variables is -0.193. We develop modified estimators and show that they yield essentially unbiased spread estimates.
- Language
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Englisch
- Bibliographic citation
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Series: CFR Working Paper ; No. 14-09
- Classification
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Wirtschaft
Information and Market Efficiency; Event Studies; Insider Trading
Asset Pricing; Trading Volume; Bond Interest Rates
- Subject
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trade indicator model
information asymmetry
spread estimation
- Event
-
Geistige Schöpfung
- (who)
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Theissen, Erik
Zehnder, Lars Simon
- Event
-
Veröffentlichung
- (who)
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University of Cologne, Centre for Financial Research (CFR)
- (where)
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Cologne
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Theissen, Erik
- Zehnder, Lars Simon
- University of Cologne, Centre for Financial Research (CFR)
Time of origin
- 2014
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