corwin schultz spread
What it checks
More precise daily-bar spread estimator than Roll's — uses high-low ranges, not just close-to-close.
Mechanism
Corwin-Schultz 2012 JF derive a closed-form unbiased estimator of percentage spread from daily high-low ranges (β, γ, α terms). Beats Roll out-of-sample because high-low retains intraday volatility information close-to-close discards. Used by institutional liquidity-cost desks.
Signal rule
20d rolling Corwin-Schultz S; 252d own-history z; long when z<-thresh + uptrend, short z>thresh + downtrend.
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
Expected edge
- Paper alpha
- 2-4% ann. spread-delta trading premium
- Paper window
- 1993-2008
Corwin-Schultz 2012: ~10% MSE improvement over Roll on spread estimation; tradeable returns 2-4% ann.
Related families
roll implicit spreadMicrostructureRoll (1984, JF) derives the implicit bid-ask spread from neg-autocovariance of daily price changes: 2*sqrt(-Cov(Δp_t, Δp_t-1)). Captures information-asymmetry premium without TAQ data. Spread *delta* (own-history z) is more tradeable than level post-decimalization — widening predicts forward underperformance over 5-21 days (Brennan-Chordia-Subrahmanyam-Tong 2012).
amihud illiquidityMicrostructureAmihud illiquidity = |daily_return| / dollar_volume (×1e6). High ILLIQ → larger price impact per dollar traded → liquidity-risk premium. 20-day rolling Amihud measure ranks tickers; long top-decile illiquid (premium for bearing illiquidity), short bottom-decile.
idio vol puzzleRisk-PremiumStocks with high idiosyncratic volatility relative to FF3 earn LOWER returns going forward — the IVOL puzzle (Ang-Hodrick-Xing-Zhang 2006/2009). Counterintuitive (more idio risk should imply higher required return) but robust across 23+ markets. Short top-quintile IVOL (~−7% ann. excess), long bottom-quintile (mild positive carry). Distinct from lottery_max which keys off MAX[5d] peak; IVOL keys off residual stdev.
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