Bid-ask spreads, volume, and volatility: Evidence from livestock markets

Julieta Frank, Philip Garcia

Research output: Contribution to journalArticlepeer-review

Abstract

Using literature-based measures and a modified Bayesian method specified here, we estimate liquidity costs and their determinants for the live cattle and hog futures markets. Volume and volatility are simultaneously determined and significantly related to the bid-ask spread. Daily volume is negatively related to the spread while volatility and average volume per transaction display positive relationships. Electronic trading has a significant competitive effect on liquidity costs, particularly in the live cattle market. Results are sensitive to the bid-ask spread measure, with our modified Bayesian method providing estimates most consistent with expectations and the competitive structure in these markets.

Original languageEnglish (US)
Pages (from-to)209-225
Number of pages17
JournalAmerican Journal of Agricultural Economics
Volume93
Issue number1
DOIs
StatePublished - Jan 2011

Keywords

  • Bayesian estimation
  • Gibbs sampler
  • bid-ask spread determinants
  • commodity futures
  • liquidity cost

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

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