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Bid-Ask Spread and its Components Estimation for BSE stocks Using Models Based on Autocovariance

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  • Lucian Tatu

    (Academy of Economic Studies, Bucharest, Romania)

  • Delia Tatu

    (Academy of Economic Studies, Bucharest, Romania)

Abstract

An important component of the transaction costs faced by investors in financial securities is the bid-ask spread set by market maker. The goal of this study is to determine the importance of the components of spread (order processing costs, inventory costs and adverse selection costs) using models based on autocovariance derived by Roll(1984), George, Kaul and Nimalendran (1991) and Stoll (1989). Also, we examine the relationship between some stock characteristics (such as daily volume of trading and average stock price) and spread. The data set contains information about Bucharest Stock Exchange (BSE) first tier quoted stocks, for the period 27.11.2006- 19.12.2006.This paper was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal on May 23, 2008Keywords: bid-ask spread, inventory cost, adverse selection cost, order cost

Suggested Citation

  • Lucian Tatu & Delia Tatu, 2008. "Bid-Ask Spread and its Components Estimation for BSE stocks Using Models Based on Autocovariance," International Trade and Finance Association Conference Papers 1125, International Trade and Finance Association.
    • Handle: RePEc:bep:itfapp:1125
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    Keywords

    bid-ask spread; inventory cost; adverse selection cost; order cost;
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