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Characterizing bid–ask prices in the Brazilian equity market

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  • Cajueiro, Daniel O.
  • Tabak, Benjamin M.

Abstract

This paper presents evidence of long-range dependence in bid–ask prices for individual equity prices in the Brazilian stock market. Moreover, using the Hurst exponent calculated by the Local Whittle method as a measure of long-range dependence, we find evidence supporting that bid–ask prices shows a stronger long-range dependence than the one usually found in closing and opening prices. Finally, we show that bid–ask prices may be characterized by a distribution that decays as a power law reinforcing the results of Plerou et al. [Quantifying fluctuations in market liquidity: analysis of the bid–ask spread, Phys. Rev. E 71 (2005) 046131].

Suggested Citation

  • Cajueiro, Daniel O. & Tabak, Benjamin M., 2007. "Characterizing bid–ask prices in the Brazilian equity market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 373(C), pages 627-633.
    • Handle: RePEc:eee:phsmap:v:373:y:2007:i:c:p:627-633
    DOI: 10.1016/j.physa.2006.04.106
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    References listed on IDEAS

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    1. O'Hara, Maureen & Oldfield, George S., 1986. "The Microeconomics of Market Making," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(4), pages 361-376, December.
    2. Harold Demsetz, 1968. "The Cost of Transacting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(1), pages 33-53.
    3. Zabel, Edward, 1981. "Competitive Price Adjustment without Market Clearing," Econometrica, Econometric Society, vol. 49(5), pages 1201-1221, September.
    4. Cajueiro, Daniel O. & Tabak, Benjamin M. & Souza, Nathalia A., 2005. "Periodic market closures and the long-range dependence phenomena in the Brazilian equity market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 351(2), pages 512-522.
    5. Cajueiro, Daniel O. & Tabak, Benjamin M., 2005. "Possible causes of long-range dependence in the Brazilian stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 345(3), pages 635-645.
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    Cited by:

    1. Ling-Yun He, 2010. "Is Price Behavior Scaling and Multiscaling in a Dealer Market? Perspectives from Multi-Agent Based Experiments," Computational Economics, Springer;Society for Computational Economics, vol. 36(3), pages 263-282, October.
    2. Marco Bartolozzi, 2010. "A Multi Agent Model for the Limit Order Book Dynamics," Papers 1005.0182, arXiv.org, revised Oct 2010.

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