IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Order Flow, Trading Costs and Corporate Acquisition Announcements

Listed author(s):
  • Jennifer Conrad
  • Cathy M. Niden
Registered author(s):

    The bid-ask spread is an important element of investors' transactions costs. Theoretical papers decompose the spread into adverse selection, inventory cost, and order processing cost components. The order processing cost component compensates the stock exchange specialist for providing immediacy to buyers and sellers. The inventory cost component compensates the specialist for the risk of holding an inventory of a stock. The inventory component is larger for high-priced stocks, stocks which trade infrequently, and stocks with a relatively uncertain value. This study focuses on the adverse selection component of the spread, which compensates the specialist for losses to traders who have inside information. Prior theoretical work suggests that the adverse selection component will be larger, the greater the proportion of traders who have private information. The specialist will widen the spread in response to a perceived increase in the probability that the next trader is privately informed. Prior studies also suggest that privately informed traders will generally trade larger amounts than uninformed traders. Consequently, trade size should impart information about the probability that a trader is privately informed.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Article provided by Financial Management Association in its journal Financial Management.

    Volume (Year): 21 (1992)
    Issue (Month): 4 (Winter)

    in new window

    Handle: RePEc:fma:fmanag:conrad92
    Contact details of provider: Postal:
    University of South Florida 4202 E. Fowler Ave. COBA #3331 Tampa, FL 33620

    Phone: 813-974-2084
    Fax: 813-974-3318
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:fma:fmanag:conrad92. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Connors)

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.