Decomposing the bid-ask spread in the Brazilian market: an intraday framework

Marcelo Righi (), Kelmara Vieira (), Daniel Coronel, Reisoli Bender Filho () and Paulo Ceretta ()
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Kelmara Vieira: Federal University of Santa Maria
Reisoli Bender Filho: Federal University of Santa Maria
Paulo Ceretta: Federal University of Santa Maria

Economics Bulletin, 2014, vol. 34, issue 3, 2010-2023

Abstract: In this paper, we identify the bid-ask spread components in the Brazilian market at intraday high frequency. To do so, we use data from all stocks that compose the Ibovespa in 10-minute frequencies from January to March of 2013. We use the model of Huang and Stoll (1997). Preliminary results indicate that there is a relatively stable pattern in the temporal evolution of the means of the bid-ask spread percentage with a distinct seasonal effect linked to the opening and closing of the Brazilian market. Regarding the proportion of components, adverse selection costs exhibit the lowest participation in the bid-ask spread of stocks in the Brazilian market (approximately 3%); inventory holding costs have the largest participation (approximately 52%), followed by the order processing costs component (45%). The presented results highlight the importance of liquidity over information asymmetry as the observed pattern diverges from those obtained in previous studies conducted in developed markets.

JEL-codes: G0 G1 (search for similar items in EconPapers)
Date: 2014-09-16
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