IDEAS home Printed from https://ideas.repec.org/p/ysm/somwrk/ysm179.html
   My bibliography  Save this paper

Dynamics of Effective Quotes and Spreads Between Consecutive Trades - A Real-Time Structural Model of Price Formation

Author

Listed:
  • Liang Peng

    (Department of Finance)

Abstract

This paper develops a real-time structural model of price formation, and uses it to investigate the dynamics of effective quotes and bid-ask spreads between consecutive trades. There is some evidence that the effective bid-ask spreads increase over time when no orders arrive. The effective quotes are found to change over time when no orders arrive. The dynamics of bid and ask are different and are related to the direction of previous transaction. Market makers act as though they believe that clustering trades with middle-range duration (coming one or two minutes after the last trades) are more likely to contain private information, while reversing trades with same duration are less likely to contain private information. Some stylized facts are also established regarding the average duration and frequency for clustering trades, reversing trades,upticks, and downticks.

Suggested Citation

  • Liang Peng, 2001. "Dynamics of Effective Quotes and Spreads Between Consecutive Trades - A Real-Time Structural Model of Price Formation," Yale School of Management Working Papers ysm179, Yale School of Management.
  • Handle: RePEc:ysm:somwrk:ysm179
    as

    Download full text from publisher

    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=266100
    Download Restriction: no
    ---><---

    Citations

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


    Cited by:

    1. Angeles de Frutos, M. & Manzano, Carolina, 2005. "Trade disclosure and price dispersion," Journal of Financial Markets, Elsevier, vol. 8(2), pages 183-216, May.

    More about this item

    Keywords

    Price formation; Bid-ask spread; Trade duration; Quote dynamics;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

    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:ysm:somwrk:ysm179. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/smyalus.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.