Roll Spread Estimator
Computes Roll's effective spread estimator from a price series: 2 times the square root of the negative serial covariance between consecutive price changes. The intuition, from Richard Roll in 1984, is that the back-and-forth between buying and selling (the bid-ask bounce) creates a negative correlation in very short-term returns, and the size of that correlation reveals the implied spread. When the covariance isn't negative, the estimator is undefined and returns zero. Enter the price series.
Resultado
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Roll Spread Estimator
Computes Roll's effective spread estimator from a price series: 2 times the square root of the negative serial covariance between consecutive price changes. The intuition, from Richard Roll in 1984, is that the back-and-forth between buying and selling (the bid-ask bounce) creates a negative correlation in very short-term returns, and the size of that correlation reveals the implied spread. When the covariance isn't negative, the estimator is undefined and returns zero. Enter the price series.
The spread hidden in the price zigzag
You can't always see an asset's bid-ask spread directly, but it leaves a clue in price behavior. Every time one trade hits the ask and the next hits the bid, the price jumps up and then down, even without the real value changing. Richard Roll realized, in 1984, that this back-and-forth creates a negative correlation in very short-term returns.
The clever move was to reverse the reasoning: if the bid-ask bounce generates that negative correlation, then measuring the correlation gives back the spread. The formula is twice the square root of the negative serial covariance between consecutive price changes. It's a way to estimate liquidity using only price history, with no need for bid and ask data.
Enter the price series separated by commas. The tool computes the changes, the serial covariance and returns the implied spread. Mind the method's famous limitation: in practice, many real series show positive serial covariance, in which case the estimator is undefined and returns zero, without meaning the spread is truly nil.
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.