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Liquidity skewness

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  • 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.

Suggested Citation

  • Roll, Richard & Subrahmanyam, Avanidhar, 2010. "Liquidity skewness," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2562-2571, October.
    • Handle: RePEc:eee:jbfina:v:34:y:2010:i:10:p:2562-2571
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    References listed on IDEAS

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    Cited by:

    1. Benjamin M. Blau & Ryan J. Whitby, 2015. "The Volatility of Bid-Ask Spreads," Financial Management, Financial Management Association International, vol. 44(4), pages 851-874, October.
    2. Blau, Benjamin M. & Brough, Tyler J. & Griffith, Todd G., 2017. "Bank opacity and the efficiency of stock prices," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 32-47.
    3. Paresh Kumar Narayan & Sagarika Mishra & Seema Narayan, 2015. "New empirical evidence on the bid-ask spread," Applied Economics, Taylor & Francis Journals, vol. 47(42), pages 4484-4500, September.
    4. Blau, Benjamin M. & Nguyen, Nga & Whitby, Ryan J., 2014. "The information content of option ratios," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 179-187.
    5. Benjamin M. Blau & Tyler J. Brough, 2014. "Short Sales and Option Listing Decisions," Financial Management, Financial Management Association International, vol. 43(3), pages 703-724, September.
    6. Ripamonti, Alexandre, 2016. "Corwin-Schultz bid-ask spread estimator in the Brazilian stock market," MPRA Paper 79459, University Library of Munich, Germany.
    7. Blau, Benjamin M. & Griffith, Todd G., 2016. "Price clustering and the stability of stock prices," Journal of Business Research, Elsevier, vol. 69(10), pages 3933-3942.
    8. Kristina Minnick & Kartik Raman, 2014. "Why are Stock Splits Declining?," Financial Management, Financial Management Association International, vol. 43(1), pages 29-60, March.
    9. 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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    Liquidity Market efficiency Trading;

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