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The components of bid–ask spread on the Warsaw Stock Exchange

In: Handbook of Banking and Finance in Emerging Markets

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  • PaweÅ‚ MiÅ‚obÄ™dzki
  • Sabina Nowak

Abstract

This chapter aims to estimate the components of bid–ask spread on the Warsaw Stock Exchange (WSE), the largest capitalization stock market in the Central and Eastern European (CEE) region. For this purpose, we applied the bid-ask spread decomposition model of McGroarty et al. (2007) to the stocks included in its main index WIG 20 and demonstrate portions of their spreads that can be attributed to private information, the existence of temporary buy-sell imbalances, and price clustering. The analysis performed on the transaction data from the period May-July 2017 shows that the spread components differed in magnitude over shorter periods of time within the trading day and across the permilles of stock price change, indicating that the trading costs at the WSE are sensitive to market imperfections (information asymmetry and asynchronous arrival of traders at the market).

Suggested Citation

  • PaweÅ‚ MiÅ‚obÄ™dzki & Sabina Nowak, 2022. "The components of bid–ask spread on the Warsaw Stock Exchange," Chapters, in: Duc K. Nguyen (ed.), Handbook of Banking and Finance in Emerging Markets, chapter 8, pages 131-151, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20452_8
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    Keywords

    Development Studies; Economics and Finance;

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