The DOI matches its Crossref record; 1 of the 1 references it cites were found in a registry or an index.
Information Effects on the Bid‐Ask Spread
Abstract
An individual who chooses to serve as a market‐maker is assumed to optimize his position by setting a bid‐ask spread which maximizes the difference between expected revenues received from liquidity‐motivated traders and expected losses to information‐motivated traders. By characterizing the cost of supplying quotes, as writing a put and a call option to an information‐motivated trader, it is shown that the bid‐ask spread is a positive function of the price level and return variance, a negative function of measures of market activity, depth, and continuity, and negatively correlated with the degree of competition. Thus, the theory of information effects on the bid‐ask spread proposed in this paper is consistent with the empirical literature.
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Citations
Cites
The pricing of options and corporate liabilities
Black, F., & Scholes, M. (1973) · Journal of Political Economy · doi:10.1086/260062 · Cited by 29,074
Cited by
Disclosure level and the cost of equity capital.
Botosan, C. A. (1997) · The Accounting Review · doi:10.2308/tar-9709240185 · Cited by 3,436
A Simple Implicit Measure of the Effective Bid‐Ask Spread in an Efficient Market
ROLL, R. (1984) · The Journal of Finance · doi:10.1111/j.1540-6261.1984.tb03897.x · Cited by 2,747
The Relation Between Price Changes and Trading Volume: A Survey
Karpoff, J. M. (1987) · The Journal of Financial and Quantitative Analysis · doi:10.2307/2330874 · Cited by 2,377
The Economic Consequences of Increased Disclosure
Leuz, C., & Verrecchia, R. E. (2000) · Journal of Accounting Research · doi:10.2307/2672910 · Cited by 2,370
LEUZ, C., & WYSOCKI, P. D. (2016) · Journal of Accounting Research · doi:10.1111/1475-679x.12115 · Cited by 1,760
Metadata
- Authors
- COPELAND, T. E., & GALAI, D.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1983-12
- Volume
- 38
- Issue
- 5
- Pages
- 1457-1469
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W1966977762
- Cited by
- 1,868
- References
- 1
- FWCI
- 11.21
- Type
- journal article
- Language
- en
- Open access
- closed
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- COPELAND, T. E., & GALAI, D. (1983). Information Effects on the Bid‐Ask Spread. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.1983.tb03834.x
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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.
