International Trade and Finance Association Working Papers 2008
Bid-Ask Spread and its Components Estimation for BSE stocks Using Models Based on AutocovarianceLucian Tatu, Academy of Economic Studies, Bucharest, Romania Lucien Tatu, Academy of Economic Studies from Bucharest, Piata Romana Street , No. 6, Bucharest, Cod 010374, tel +004021 319 19 00, Fax +004021 319 18 99 Delia Tatu, Academy of Economic Studies from Bucharest, Piata Romana Street , No. 6, Bucharest, Cod 010374, tel +004021 319 19 00, Fax +004021 319 18 99, e-mail tatudelia@yahoo.com, delia.tatu@economie.ase.ro Download the Paper (PDF format) - August 13, 2008 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing. ABSTRACT: An important component of the transaction costs faced by investors in financial securities is the bid-ask spread set by market maker. The goal of this study is to determine the importance of the components of spread (order processing costs, inventory costs and adverse selection costs) using models based on autocovariance derived by Roll(1984), George, Kaul and Nimalendran (1991) and Stoll (1989). Also, we examine the relationship between some stock characteristics (such as daily volume of trading and average stock price) and spread. The data set contains information about Bucharest Stock Exchange (BSE) first tier quoted stocks, for the period 27.11.2006- 19.12.2006. This paper was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal on May 23, 2008 Keywords: bid-ask spread, inventory cost, adverse selection cost, order cost SUGGESTED CITATION:
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