Price & Market BehaviorExtended setCatalog liveNew

Roll Implicit Spread

Updated dailyData needs: lowlong only

1984

Roll 1984 JF (implicit bid-ask spread estimator from negative autocovariance of price changes); traded effect: Amihud-Mendelson 1986 JFE illiquidity level premium.

Citation only, paper link pending.

In plain terms

Effective bid-ask spread inferred from how negatively a stock's daily price changes auto-correlate. Stocks trading with a wide implicit spread carry an illiquidity premium; the strategy goes long wide-spread names when the trend confirms, with no short side.

How it works

Roll (1984, JF) derives the implicit bid-ask spread from negative autocovariance of daily price changes: 2*sqrt(-Cov(dp_t, dp_t-1)), computable without TAQ data. The traded effect is the Amihud-Mendelson 1986 LEVEL illiquidity premium: persistently wide implicit spread earns a forward-return premium. Long-only harvest; the BCST 2012 spread-delta/short thesis was tested and removed (v2) after in-house OOS audits showed the short side fights the premium.

Live results

7 times picked on its own · 78 times inside a blend (66 beat the stock) · updated 2026-07-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 78 such blended picks (66 of which beat simply holding the stock). Picking it on its own is only one of the ways it shows up.

How its picks scored vs. buy & hold

Each pick is graded on a recent year it was never tuned on, against simply owning the same stock

Where its edge concentrates

Share of picks in each company-size group that beat buy & hold

How often it trades

Active vs. patient. Bars on the left mean it waits for rare setups; bars on the right mean it trades often

Return vs. buy & hold

How much each pick beat or trailed simply owning the stock over the test year (extreme microcap moves trimmed)

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Data dependencies

Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.

Expected edge

Reported return: ~3-5% ann. illiquidity level premium (Amihud-Mendelson 1986)
Tested over: 1961-1980 NYSE (Amihud-Mendelson 1986); Roll estimator 1984

Amihud-Mendelson 1986: ~3-5% ann. illiquidity level premium, long-only. Short/long_short modes removed in v2 (2026-05-26) after -0.21 median OOS Sharpe across ~11.7k tickers.

Related families

Amihud IlliquidityPrice & Market Behavior

Measures how much the price moves per dollar traded. Stocks costly to exit must pay investors more — long the illiquid names for the premium.

Corwin Schultz SpreadPrice & Market Behavior

A more precise daily-bar bid-ask spread estimator than Roll's, using high-low ranges. We go long only, when a stock's estimated spread widens sharply versus its own one-year history while it is in an uptrend; thresholds vary. No short side.

Low-Volatility PremiumEconomy & Policy

Counterintuitive: high-idiosyncratic-vol stocks UNDERPERFORM. So short the high-IVOL names, long the steady ones.

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