An intraday examination of the components of the bid-ask spread
Abstract
Using transactions data for a sample of NYSE stocks, we decompose the bid-ask spread (BAS) into order-processing (OP) and asymmetric information (AI) components using the techniques of George, Kaul, and Nimalendran (1991) and Madhavan, Richardson, and Roomans (1997). McInish and Wood (1992) demonstrate that the intraday behavior of BASs can be explained by variables measuring activity, competition, risk, and information. We investigate whether these variables explain the behavior of the OP and AI components of the spread over the trading day. We conclude that, on balance, the variables that determine the aggregate BAS also determine its intraday components. © 2002 by the Eastern Finance Association.
Publication Title
Financial Review
Recommended Citation
McInish, T., & Van Ness, B. (2002). An intraday examination of the components of the bid-ask spread. Financial Review, 37 (4), 507-524. https://doi.org/10.1111/1540-6288.00026
