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Liquidity skewness

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Author Info

  • Roll, Richard
  • Subrahmanyam, Avanidhar

Abstract

Bid-ask spreads in equities have declined on average but have become increasingly right-skewed. This finding holds across exchanges as well as size, price, and volume quartiles. Higher right-skewness is consistent with more competition among market makers; which may reduce cross-subsidization across periods of high and low asymmetric information, unlike a monopolistic regime that can maintain a relatively constant spread. Confirming this intuition, proportional differences in spreads between earnings announcements and normal periods have increased considerably even as trading costs have declined on average. Skewness also is cross-sectionally related to information proxies such as institutional holdings and analyst following.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 10 (October)
Pages: 2562-2571

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:10:p:2562-2571

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Liquidity Market efficiency Trading;

References

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Cited by:
  1. Narayan, Paresh Kumar & Mishra, Sagarika & Narayan, Seema, 2014. "Spread determinants and the day-of-the-week effect," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 51-60.

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