An Order Processing Model of the Bid-Ask Spread: The Indian Evidence

Parameshwaran, Sunil and Banerjee, Tuhin S (1998) An Order Processing Model of the Bid-Ask Spread: The Indian Evidence. TAPMI, Manipal.

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Abstract

The quoted bid-ask spread is defined as the difference between the price at which a dealer is willing to sell the security, the 'ask', and the price at which he is willing to buy it, the 'bid'. There are three major theories which purport to explain the existence of the spread. These are, order processing cost models, inventory cost models, and adverse selection models. Stoll (1989) develops a unified framework for studying the relative importance of these, and shows that the differences between the models lie in their predictions regarding the probability of a price reversal, and the magnitude of the price versaL1Stoll also makes a distinction between the quoted spread, and the effective or realized spread. The realized spread is defined as the difference betweeen the price at which the dealer sells a security, and the price at which he buys at an earlier

Item Type:	TAPMI Working Papers
Uncontrolled Keywords:	MODEL OF THE BID-ASK SPREAD; Stock Market;Finance
Subjects:	Finance Finance > Capital Markets/Stock Marketing
Divisions:	Finance and Strategy
Depositing User:	Ms. Vanitha K
Date Deposited:	17 Nov 2018 10:27
Last Modified:	09 Jan 2019 09:00
URI:	http://tapmi.informaticsglobal.com/id/eprint/392

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