The Dynamics of Discrete Bid and Ask Quotes

Joel Hasbrouck

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: This paper describes a general approach to the estimation of security price dynamics when the phenomena of interest are of the same scale or smaller than the tick size. The model views discrete bid and ask quotes as arising form the three continuous random variables: the efficient price of the security, a cost of quote exposure (information and processing costs) on the bid side and a similar cost of quote exposure on the ask side. The bid quote is the efficient price less the bid cost rounded

Date: 1997-07-25
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Persistent link: https://EconPapers.repec.org/RePEc:fth:nystfi:98-041

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