Bid‐Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets

Julieta Frank · Philip Garcia

56 citations0/0 files storedAmerican Journal of Agricultural Economics

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Financial Markets and Investment Strategies Economics of Agriculture and Food Markets Market Dynamics and Volatility

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.

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References

1978Specification Tests in Econometrics 1985Continuous Auctions and Insider Trading 1994Automatic Lag Selection in Covariance Matrix Estimation 1984A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market 1992Testing the Autocorrelation Structure of Disturbances in Ordinary Least Squares and Instrumental Variables Regressions 2010The Adequacy of Speculation in Agricultural Futures Markets: Too Much of a Good Thing?2000Trading volume, bid-ask spread, and price volatility in futures markets 2004Liquidity in the Futures Pits: Inferring Market Dynamics from Incomplete Data

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2013The Behavior of Bid‐Ask Spreads in the Electronically‐Traded Corn Futures Market 2020Measuring the effect of investor sentiment on liquidity 2019Price Discovery in Agricultural Futures Markets: Should We Look beyond the Best Bid‐Ask Spread?2010Electronic vs. Open Outcry: Side-by-Side Trading of KCBT Wheat Futures

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