The Components of the Bid-Ask Spread: A General Approach

Clicks: 3
ID: 296051
1997
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Abstract
A simple time-series market microstructure model is constructed within which existing models of spread components are reconciled. We show that existing models fail to decompose the spread into all its components. Two alternative extensions of the simple model are developed to identify all the components of the spread and to estimate the spread at which trades occur. The empirical results support the presence of a large order processing component and smaller, albeit significant, adverse selection and inventory components. The spread components differ significantly according to trade size and are also sensitive to assumptions about the relation between orders and trades.
Reference Key
openalex_W2034903818 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Roger D. Huang, Hans R. Stoll
Journal review of financial studies
Year 1997
DOI
10.1093/rfs/10.4.995
URL
https://doi.org/10.1093/rfs/10.4.995
Keywords Keywords not found

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