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A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices




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    • Both authors are from the Mendoza College of Business at the University of Notre Dame. We are grateful to the Editor, Cam Harvey, the Associate Editor, and two anonymous referees for their valuable suggestions. We also thank seminar participants at the University of Notre Dame and the National Bureau of Economic Research Market Microstructure meeting, and Shmuel Baruch, Robert Battalio, Hank Bessembinder, Ryan Davies, Larry Harris, Joel Hasbrouck, Asani Sarkar, and Noah Stoffman for helpful comments.


We develop a bid-ask spread estimator from daily high and low prices. Daily high (low) prices are almost always buy (sell) trades. Hence, the high–low ratio reflects both the stock's variance and its bid-ask spread. Although the variance component of the high–low ratio is proportional to the return interval, the spread component is not. This allows us to derive a spread estimator as a function of high–low ratios over 1-day and 2-day intervals. The estimator is easy to calculate, can be applied in a variety of research areas, and generally outperforms other low-frequency estimators.

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