THE COMPONENTS OF BID-ASK SPREAD FOR BSE STOCKS

Bogdan Negrea and Lucian Tatu

Theoretical and Applied Economics, 2007, vol. 11(516)(supplement)(vol2), issue 11(516)(supplement)(vol2), 27-32

Abstract: An important component of the transaction costs faced by investors in financial securities is the bid-ask spread set by market maker. The goal of this study is to determine the importance of the components of spread (order processing costs, inventory costs and adverse selection costs) using o model derived by Stoll (1989). Also, we examine the relationship between some stock characteristics (such as daily volume of trading and average stock price) and spread. The data set contains information about Bucharest Stock Exchange (BSE) first tier quoted stocks, for the period 27.11.2006- 19.12.2006.

Keywords: bid-ask spread; inventory cost; adverse selection cost; order cost. (search for similar items in EconPapers)
Date: 2007
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