Market Microstructure from Prices

Transaction prices contain traces of the spread and short-horizon volatility. The notebooks examine range-based estimators, compare their components, and measure their error in controlled and public examples.

The central relation

A proportional effective spread can be represented as

S_t=\frac{2D_t(P_t-\widetilde P_t)}{\widetilde P_t},\qquad D_t\in\{-1,1\}.

$P_t$ is the transaction price, $\widetilde P_t$ is the unobserved fair price, and $D_t$ records whether the trade is buyer or seller initiated. The value $S_t$ measures the round-trip price concession relative to fair value.

Estimating trading costs from price ranges

The component plot shows how price ranges enter the Corwin-Schultz construction. The public comparison places EDGE beside other price-only estimates.

Price-range components used by the Corwin-Schultz spread calculation. — The range components combine one-day and two-day high-low movements to separate a spread signal from price variation.

EDGE and alternative price-based spread estimates on public observations. — The public-data comparison shows the level and variation of several price-only spread estimates over the same periods.

These estimators infer latent trading quantities from prices. Their agreement is a diagnostic, not direct observation of the true spread.

Notebooks


1. Inferring liquidity from observed price ranges
2. Estimating spread and volatility from price ranges
3. Evaluating EDGE in finite samples