Working Paper

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.

Keywords: Effective spread; Simulated method of moments; Time-varying estimation; Transaction costs;

JEL Classification: C14; C15; G20;

https://doi.org/10.17016/FEDS.2017.045

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2017-04-06

Number: 2017-045

Pages: 47 pages