Finance and Economics Discussion Series (FEDS)
April 2017
Measuring Transaction Costs in the Absence of Timestamps
Abstract:
This paper develops measures of transaction costs in the absence of transaction timestamps and information about who initiates transactions, which are data limitations that often arise in studies of over-the-counter markets. I propose new measures of the effective spread and study the performance of all estimators analytically, in simulations, and present an empirical illustration with small-cap stocks for the 2005-2014 period. My theoretical, simulation, and empirical results provide new insights into measuring transaction costs and may help guide future empirical work.
Accessible materials (.zip)
Keywords: Effective spread, simulated method of moments, time-varying estimation, transaction costs
DOI: https://doi.org/10.17016/FEDS.2017.045
PDF: Full Paper