IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v46y1991i1p433-46.html
   My bibliography  Save this article

Consistency between Predicted and Actual Bid-Ask Quote-Revisions

Author

Listed:
  • Jang, Hasung
  • Venkatesh, P C

Abstract

This paper employs a "transaction" database to study whether observed quote revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid-ask spread. The authors find that actual quote revisions are consistent with the theoretical prediction in only 25 percent of the cases. Furthermore, quote-revision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote revisions of the limit order book and the minimum 1/8 price-change rule. Copyright 1991 by American Finance Association.

Suggested Citation

  • Jang, Hasung & Venkatesh, P C, 1991. "Consistency between Predicted and Actual Bid-Ask Quote-Revisions," Journal of Finance, American Finance Association, vol. 46(1), pages 433-446, March.
    • Handle: RePEc:bla:jfinan:v:46:y:1991:i:1:p:433-46
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0022-1082%28199103%2946%3A1%3C433%3ACBPAAB%3E2.0.CO%3B2-O&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roberto Pascual & David Veredas, 2010. "Does the Open Limit Order Book Matter in Explaining Informational Volatility?," Journal of Financial Econometrics, Oxford University Press, vol. 8(1), pages 57-87, Winter.
    2. Escribano, Álvaro & Pascual, Roberto, 2000. "Dynamic asymmetries in bid-ask responses to innovations in the trading process," UC3M Working papers. Economics 7271, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Chen, Yu-Lun & Gau, Yin-Feng, 2014. "Asymmetric responses of ask and bid quotes to information in the foreign exchange market," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 194-204.
    4. Frijns, Bart & Schotman, Peter C., 2006. "Nonlinear dynamics in Nasdaq dealer quotes," Computational Statistics & Data Analysis, Elsevier, vol. 51(4), pages 2246-2266, December.
    5. Meihui Guo & Yi-Ting Guo & Chi-Jeng Wang & Liang-Ching Lin, 2015. "Assessing influential trade effects via high-frequency market reactions," Journal of Applied Statistics, Taylor & Francis Journals, vol. 42(7), pages 1458-1471, July.
    6. Engle, Robert F. & Patton, Andrew J., 2004. "Impacts of trades in an error-correction model of quote prices," Journal of Financial Markets, Elsevier, vol. 7(1), pages 1-25, January.
    7. Mircea BAHNA & Cosmin-Octavian CEPOI & Bogdan Andrei DUMITRESCU & Virgil DAMIAN, 2018. "Estimating the Price Impact of Market Orders on the Bucharest Stock Exchange," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 120-133, December.
    8. Alex Frino & David R. Gallagher, 2002. "Is Index Performance Achievable? An Analysis of Australian Equity Index Funds," Abacus, Accounting Foundation, University of Sydney, vol. 38(2), pages 200-214, June.
    9. Porter, David C. & Thatcher, John G., 1998. "Fragmentation, competition, and limit orders: New evidence from interday spreads," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(1), pages 111-128.
    10. Gunther Wuyts, 2012. "The impact of aggressive orders in an order-driven market: a simulation approach," The European Journal of Finance, Taylor & Francis Journals, vol. 18(10), pages 1015-1038, November.
    11. Laura T. Starks, 1994. "Discussion of “Market Microstructure: An Examination of the Effects on Intraday Event Studies†," Contemporary Accounting Research, John Wiley & Sons, vol. 10(2), pages 383-386, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:46:y:1991:i:1:p:433-46. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.