A COMPARISON OF BID-ASK SPREAD PROXIES: EVIDENCE FROM BORSA ISTANBUL FUTURES

Abstract

We analyze the performance of five different methods appearing in the market microstructure literature in predicting effective and quoted bid-ask spreads (Roll, LOT Mixed, Effective Tick, High-Low and Closing Percent Quoted Spread proxies). With data from index futures, currency futures and gold futures traded in Borsa Istanbul and taking percent effective and percent quoted spreads obtained from intraday trade and quote data as benchmarks, we calculate and compare the correlations and root mean square errors of the spread measures. Results show that none of the proxies is successful enough in estimating effective or quoted spread although under normal market conditions, Effective Tick appears to perform best

Keywords

• bid-ask spread,Borsa Istanbul

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