Volltext herunterladen
(575.0 KB)
Zitationshinweis
Bitte beziehen Sie sich beim Zitieren dieses Dokumentes immer auf folgenden Persistent Identifier (PID):
https://nbn-resolving.org/urn:nbn:de:0168-ssoar-221056
Export für Ihre Literaturverwaltung
Relation between Bid-Ask Spread, Impact and Volatility in Order-Driven Markets
[Zeitschriftenartikel]
Abstract We show that the cost of market orders and the profit of infinitesimal market-making or -taking strategies can be expressed in terms of directly observable quantities, namely the spread and the lag-dependent impact function. Imposing that any market taking or liquidity providing strategies is at bes... mehr
We show that the cost of market orders and the profit of infinitesimal market-making or -taking strategies can be expressed in terms of directly observable quantities, namely the spread and the lag-dependent impact function. Imposing that any market taking or liquidity providing strategies is at best marginally profitable, we obtain a linear relation between the bid-ask spread and the instantaneous impact of market orders, in good agreement with our empirical observations on electronic markets. We then use this relation to justify a strong, and hitherto unnoticed, empirical correlation between the spread and the volatility per trade, with R2s exceeding 0.9. This correlation suggests both that the main determinant of the bid-ask spread is adverse selection, and that most of the volatility comes from trade impact. We argue that the role of the time-horizon appearing in the definition of costs is crucial and that long-range correlations in the order flow, overlooked in previous studies, must be carefully factored in. We find that the spread is significantly larger on the NYSE, a liquid market with specialists, where monopoly rents appear to be present.... weniger
Klassifikation
Öffentliche Finanzen und Finanzwissenschaft
Freie Schlagwörter
Microstructure; Bid-ask spread; Impact; Liquidity
Sprache Dokument
Englisch
Publikationsjahr
2007
Seitenangabe
S. 41-57
Zeitschriftentitel
Quantitative Finance, 8 (2007) 1
DOI
https://doi.org/10.1080/14697680701344515
Status
Postprint; begutachtet (peer reviewed)
Lizenz
PEER Licence Agreement (applicable only to documents from PEER project)