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The Adverse Selection Cost Component of the Spread of Brazilian Stocks

Listed author(s):
  • Gustavo Silva Araújo
  • Claudio Henrique da Silveira Barbedo
  • José Valentim Machado Vicente

This study analyzes the adverse selection cost component embedded in the spreads of Brazilian stocks. We show that it is higher than in the U.S. market and presents an intraday U-shape pattern (i.e., it is higher at the beginning and at the end of the day). In addition, we investigate the relationships of the adverse selection cost with firm’s characteristics. We find that stocks listed in the highest corporate governance levels do not have the lowest costs. On the other hand, the liquidity of shares, the trade size and the market value of the firm are directly correlated with this cost

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps263.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 263.

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Date of creation: Dec 2011
Handle: RePEc:bcb:wpaper:263
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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