When Do Low-Frequency Measures Really Measure Effective Spreads? Evidence from Equity and Foreign Exchange Markets
Mohammad R. Jahan‐Parvar; Filip Žikeš · 2023 · Review of Financial Studies
WASTE classifies this as Negative / Null Result Report · AI classification, approximate
The study found no significant effect — useful as a negative control or null benchmark for your own design.
Abstract
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 mea
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Metadata source: OpenAlex · DOI 10.1093/rfs/hhad028