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The Components of the Bid-Ask Spread: A General Approach
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.
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Cited by
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FANG, V. W., TIAN, X., & TICE, S. (2014) · The Journal of Finance · doi:10.1111/jofi.12187 · Cited by 1,339
Regulatory Pressure and Fire Sales in the Corporate Bond Market
Ellul, A., Jotikasthira, P., & Lundblad, C. T. (2010) · SSRN Electronic Journal · doi:10.2139/ssrn.1362182 · Cited by 262
Metadata
- Authors
- Huang, R. D., & Stoll, H. R.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 1997-10
- Volume
- 10
- Issue
- 4
- Pages
- 995-1034
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W2034903818
- Cited by
- 1,143
- References
- 0
- FWCI
- 46.01
- Type
- journal article
- Language
- en
- Open access
- closed
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- Huang, R. D., & Stoll, H. R. (1997). The Components of the Bid-Ask Spread: A General Approach. Review of Financial Studies. https://doi.org/10.1093/rfs/10.4.995
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
