Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Consistency between Predicted and Actual Bid‐Ask Quote‐Revisions

Consistency between Predicted and Actual Bid‐Ask Quote‐Revisions ABSTRACT This paper employs a “transaction” data‐base to study whether observed quote‐revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid‐ask spread. We find that actual quote‐revisions are consistent with the theoretical prediction in only 25% of the cases. Furthermore, quote‐revision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote‐revisions of the limit order book and the minimum 1/8 price‐change rule. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Consistency between Predicted and Actual Bid‐Ask Quote‐Revisions

The Journal of Finance , Volume 46 (1) – Mar 1, 1991

Loading next page...
 
/lp/wiley/consistency-between-predicted-and-actual-bid-ask-quote-revisions-tdDKvoVr3L

References (22)

Publisher
Wiley
Copyright
1991 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1991.tb03760.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper employs a “transaction” data‐base to study whether observed quote‐revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid‐ask spread. We find that actual quote‐revisions are consistent with the theoretical prediction in only 25% of the cases. Furthermore, quote‐revision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote‐revisions of the limit order book and the minimum 1/8 price‐change rule.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1991

There are no references for this article.