Abstract
The objective of this paper is to estimate the cost components of the bid-ask spread on the London Stock Exchange using intraday data. The findings are unambiguous in isolating the three cost components of quoted spreads. They are, therefore, consistent with the earlier work of Stoll based on the quote driven Nasdaq market (Stoll, H., 1989. Journal of Finance 44, 753-776). Additionally, the three spread components vary with the liquidity of the stocks measured by the minimum number of shares market makers are obliged to trade.
| Original language | English |
|---|---|
| Pages (from-to) | 1767-1785 |
| Number of pages | 19 |
| Journal | Journal of Banking and Finance |
| Volume | 24 |
| Issue number | 11 |
| DOIs | |
| Publication status | Published - 30 Nov 2000 |
Keywords
- asymmetric information cost
- bid-ask spread
- D82
- G14
- inventory cost
- normal market size
- order-processing cost
Cite this
Menyah, K., & Paudyal, K. (2000). The components of bid-ask spreads on the London Stock Exchange. Journal of Banking and Finance, 24(11), 1767-1785. https://doi.org/10.1016/S0378-4266(99)00102-8