The components of bid-ask spreads on the London Stock Exchange

Kojo Menyah, Krishna Paudyal

Research output: Contribution to journalArticle

29 Citations (Scopus)

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 languageEnglish
Pages (from-to)1767-1785
Number of pages19
JournalJournal of Banking and Finance
Volume24
Issue number11
DOIs
Publication statusPublished - 30 Nov 2000

Keywords

  • asymmetric information cost
  • bid-ask spread
  • D82
  • G14
  • inventory cost
  • normal market size
  • order-processing cost

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