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The components of bid–ask spread on the Warsaw Stock Exchange

Paweł Miłobędzki and Sabina Nowak

Chapter 8 in Handbook of Banking and Finance in Emerging Markets, 2022, pp 131-151 from Edward Elgar Publishing

Abstract: This chapter aims to estimate the components of bid–ask spread on the Warsaw Stock Exchange (WSE), the largest capitalization stock market in the Central and Eastern European (CEE) region. For this purpose, we applied the bid-ask spread decomposition model of McGroarty et al. (2007) to the stocks included in its main index WIG 20 and demonstrate portions of their spreads that can be attributed to private information, the existence of temporary buy-sell imbalances, and price clustering. The analysis performed on the transaction data from the period May-July 2017 shows that the spread components differed in magnitude over shorter periods of time within the trading day and across the permilles of stock price change, indicating that the trading costs at the WSE are sensitive to market imperfections (information asymmetry and asynchronous arrival of traders at the market).

Keywords: Development Studies; Economics and Finance (search for similar items in EconPapers)
Date: 2022
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