Information-Based Trading and the Bid-Ask Spread

Asymmetric Information, Endogenous Illiquidity, and Asset Pricing With Imperfect Competition∗

We use a novel framework that integrates standard asset pricing and microstructure models to study how asymmetric information, imperfect competition among market makers, and risk aversion affect equilibrium illiquidity and asset pricing. All the main results are obtained in closed-form. In our model, market power, asymmetric information, and market-making cost drive market illiquidity. This mod...

A maximum (non-extensive) entropy approach to equity options bid¬タモask spread

The cross-section of options bid–ask spreads with their strikes are modelled by maximising the Kaniadakis entropy. A theoretical model results with the bid–ask spread depending explicitly on the implied volatility; the probability of expiring at-the-money and an asymmetric information parameter (κ). Considering AIG as a test case for the period between January 2006 and October 2008, we find tha...

The Use Of Financial Ratios as Measures Of Risk In The Determination Of The Bid- Ask Spread In Tehran Stock Exchange

Does quoted depth predict intraday stock returns?: theory and evidence

We generate and test new implications of Kavajecz’s (1996a) market microstructure model for cross-sectional variation in intraday expected stock returns. In this model, the specialist presents a price schedule consisting of bid and ask prices and a bid and ask size. We document that in his model, the specialist reveals through the bid-ask size spread what she believes to be the expected return ...

The optimal bid/ask spread in a Specialist System

a r t i c l e i n f o In this work we propose a simple market model where some features of the Specialist System are analyzed. In particular, the specialist's obligation to display bid/ask quotes on the book within the bounds imposed by the Exchange is considered. The proposed model allows to analyze the effects of the specialist's interventions on the short term dynamics of bid/ask prices and ...

Evaluation of the association between company performance and Iran’s stock market liquidity

This research studies the companies’ effectiveness and performance relationship with stock market liquidity in Tehran Stock Exchange during 2010-2015. Simultaneously, in the study, the three indicators: return on assets, return on investment and Tobin's Q ratio were applied as a measure of the performance and bid-ask spread as a measure of liquidity, bid-ask spread to the stock market. This res...