 The Bid-Ask Spread in the Danish Stock Market: Evidence from the 1990sInternational Journal of Economics and Finance, 2016, vol. 8, issue 9, 127-139 Abstract: This paper investigates the cost components of bid-ask spreads around earnings announcements on the small Danish stock market in the 1990s. The results indicate that negative earnings surprises convey pricing information, suggesting the existence of significant information asymmetry between market makers and informed traders. Negative earnings surprises resulted in an increase in adverse-selection cost and trading volume while inventory-holding and order-processing costs decreased, leading to a combined decrease in the realized spread. The change in the realized spread is significant, while the change in the quoted bid-ask spread is negligible. Overall, the results suggest that informed traders¡¯ ability to assess firms¡¯ performance in the Danish stock market affects the bid-ask spread around announcements of earnings. The observed changes in cost components on the small Danish stock market are similar to those observed in larger and more active capital markets. Keywords: bid-ask spread; earnings surprises; asymmetric information; order-processing costs; inventory costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ibn:ijefaa:v:8:y:2016:i:9:p:127-139 Access Statistics for this article More articles in International Journal of Economics and Finance from Canadian Center of Science and Education Contact information at EDIRC. |
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