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Roll Implicit Spread

Updated dailyData needs: lowlong onlyshort onlylong short

1984

#106 roll_implicit_spread — Roll 1984 JF bid-ask spread from neg-autocovariance.

In plain terms

Effective bid-ask spread inferred from how negatively a stock's daily returns auto-correlate. Spread widening predicts informed-trading pressure and forward underperformance.

How it works

Roll (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).

Live results

9 times picked on its own · 117 times inside a blend (97 beat the stock) · updated 2026-06-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 117 such blended picks (97 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)

Loading substrate evidence…

Data dependencies

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

Expected edge

Reported return: 3-5% ann. spread-delta short alpha
Tested over: 1963-2002 (Brennan-Chordia 2012 OOS)

Brennan-Chordia 2012: 3-5% ann. spread-widening short alpha post-decimalization.

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