The maximum bid-ask spread

Benjamin Blau (), Todd Griffith and Ryan J. Whitby

Journal of Financial Markets, 2018, vol. 41, issue C, 1-16

Abstract: We examine the return premium associated with a new measure of illiquidity that focuses on extreme points in the distribution of bid-ask spreads. Results show that stocks with larger maximum bid-ask spreads and price impacts command a return premium that is both statistically and economically significant. These results are robust to a series of multifactor portfolio tests and cross-sectional regressions controlling for mean spreads and other observable liquidity metrics. These findings suggest that the distribution of spreads matters when identifying illiquidity return premia due to the multi-faceted nature of liquidity.

Keywords: Illiquidity premium; Bid-ask spreads; Liquidity risk (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:41:y:2018:i:c:p:1-16

DOI: 10.1016/j.finmar.2018.09.003

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