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The relative contribution of ask and bid quotes to price discovery

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  • Pascual, Roberto
  • Pascual-Fuster, Bartolomé

Abstract

Using 2000–2010 data for 84 stocks listed in the Spanish Stock Exchange (SSE) and 2009–2010 data for 240 stocks listed in the New York Stock Exchange (NYSE), we provide robust evidence of daily asymmetries in the contribution of ask and bid quotes to price discovery. Asymmetries happen in 47.7% (62.8%) of the stock-day observations in our SSE (NYSE) sample, being larger in average among small cap stocks. These asymmetries are not driven by noise. Ask (bid) quotes lead in days with excessive buyer (seller) initiated trading, but the relationship weakened over time and with the advent of high-frequency trading.

Suggested Citation

  • Pascual, Roberto & Pascual-Fuster, Bartolomé, 2014. "The relative contribution of ask and bid quotes to price discovery," Journal of Financial Markets, Elsevier, vol. 20(C), pages 129-150.
    • Handle: RePEc:eee:finmar:v:20:y:2014:i:c:p:129-150
    DOI: 10.1016/j.finmar.2014.07.001
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    Cited by:

    1. Roberto Pascual & David Veredas, 2010. "Does the Open Limit Order Book Matter in Explaining Informational Volatility?," Journal of Financial Econometrics, Oxford University Press, vol. 8(1), pages 57-87, Winter.
    2. Joel Hasbrouck, 2021. "Price Discovery in High Resolution," Journal of Financial Econometrics, Oxford University Press, vol. 19(3), pages 395-430.
    3. Chen, Yu-Lun & Gau, Yin-Feng, 2014. "Asymmetric responses of ask and bid quotes to information in the foreign exchange market," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 194-204.
    4. Han, SeungOh, 2024. "Price clustering on cryptocurrency order books at a US-based exchange," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).
    5. Chen, Yu-Lun & Gau, Yin-Feng, 2015. "Foreign exchange market intervention and price discovery," Journal of the Japanese and International Economies, Elsevier, vol. 38(C), pages 214-227.
    6. Hautsch, Nikolaus & Hess, Dieter & Veredas, David, 2011. "The impact of macroeconomic news on quote adjustments, noise, and informational volatility," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2733-2746, October.
    7. Liwei Jin & Xianghui Yuan & Shihao Wang & Peiran Li & Feng Lian, 2022. "Trades or quotes: Which drives price discovery? Evidence from Chinese index futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(12), pages 2235-2247, December.
    8. Bart Frijns & Ivan Indriawan & Alireza Tourani‐Rad, 2021. "Quote dynamics of cross‐listed stocks," International Review of Finance, International Review of Finance Ltd., vol. 21(2), pages 497-522, June.

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    More about this item

    Keywords

    Price discovery; Order imbalance; Information shares; Ask and bid quotes; Limit order book; Market microstructure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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