6:00 PM Seminar Begins
7:30 PM Reception
Hybrid Event:
Fordham University
113 W 60th Street New York, NY 10023
*EVENT ROOM CHANGE*
This event is now in the South Lounge in Lowenstein.
Guests can enter it through the Ram Cafe in Lowenstein - it is up the escalator behind the security desk when you enter through the main entrance.
Free Registration!
For Virtual Attendees: Please select Virtual instead of member type upon registration.
Proof of Vaccination Upon Entry is Required for In-Person Attendees
Abstract:
We study why widely used low-frequency liquidity cost estimators based on high, low, and close prices perform well in some markets and poorly in others, often yield negative or indeterminate estimates, and how to quantify estimation bias empirically. Using the high-low spread estimator as our main setting, we show that the measure is biased due to two common bias factors. These bias sources contribute to performance loss significantly more than idiosyncratic factors, including model assumption violations and specific market microstructure characteristics, and are common to different spread estimators. Estimation bias increases in liquid assets or when price volatility is high. This relationship implies that evaluation studies in US equities inflate performance by almost 25%, as a few illiquid stocks disproportionately drive cross-sectional correlations. We then develop a theory-consistent method to calculate estimation bias bounds in any empirical context. Our bias bounds provide greater credibility to the use of the high-low estimator and address several practical issues introduced by its misbehavior.
Bio:
Dr. Pedro Tremacoldi-Rossi is currently a Postdoctoral Research Scholar in the Department of Economics at Columbia University. He studies how new technologies and microstructure design interact to determine trading behavior and shape the investment industry.
His research has received the inaugural Ben Bernanke Prize in Financial and Monetary Economics, the Brattle Group PhD Candidate Award for Outstanding Research, and has been selected as finalist for the BlackRock Applied Research Award. He received his PhD from the University of Illinois, Urbana-Champaign.
