The components of the bid-ask spread in a limit-order market: Evidence from the Tokyo Stock Exchange

Journal of Empirical Finance

Volumn 9, Issue 4, 2002, Pages 399-430

  Ahn, Hee Joon ^a   Cai, Jun ^b   Hamao, Yasushi ^c   Ho, Richard Y K ^b  

^a Sookmyung Women's University   (South Korea)

^b CITY UNIVERSITY OF HONG KONG   (Hong Kong)

^c UNIVERSITY OF SOUTHERN CALIFORNIA   (United States)

Author keywords

Adverse selection cost; Bid ask spread; Order processing cost; Trade Size

Indexed keywords

EID: 0036840588     PISSN: 09275398     EISSN: None     Source Type: Journal    
DOI: 10.1016/S0927-5398(02)00003-8     Document Type: Article

References (59)

1. Admati, A., Pfleiderer, P., 1988. A theory of intraday patterns: volume and price variability. Review of Financial Studies 1, 3-40.
2. Ahn, H.J., Bae, K., Chan, K., 2001. Limit orders, depth, and volatility: evidence from the Stock Exchange of Hong Kong. Journal of Finance 54, 767-788.
3. Amihud, Y., Mendelson, H., 1980. Dealership market: market-making with inventory. Journal of Financial Economics 8, 31-53.
4. Amihud, Y., Mendelson, H., 1989. Market microstructure and price discovery on the Tokyo Stock Exchange. Japan and the World Economy 1, 341-370.
5. Amihud, Y., Mendelson, H., 1991. Volatility, efficiency, and trading: evidence from the Japanese stock market. Journal of Finance 46, 1765-1790.
6. Amihud, Y., Mendelson, H., 1993. Liquidity, trading costs and asset prices: implications for Japan. In: Walter, I., Hiraki, T. (Eds.), Restructuring Japan's Financial Markets. Business One, Irwin, Homewood, IL, pp. 61-78.
7. Barclay, M.J., Warner, J.B., 1993. Stealth trading and volatility: which trades move prices. Journal of Financial Economics 34, 281-305.
8. Biais, B., Hillion, P., Spatt, C., 1995. An empirical analysis of the limit-order book and the order flow in the Paris Bourse. Journal of Finance 50, 1655-1689.
9. Brockman, P., Chung, D.Y., 1999. Bid-ask spread components in an order-driven environment. Journal of Financial Research 22, 227-246.
10. Chan, Y.C., 2000. The price impact of trading on the Stock Exchange of Hong Kong. Journal of Financial Markets 3, 1-16.
11. Choi, J.Y., Salandro, D., Shastri, K., 1988. On the estimation of bid-ask spreads: theory and evidence. Journal of Financial and Quantitative Analysis 23, 219-230.
12. Chung, K.H., Van Ness, F., Van Ness, R., 1999. Limit orders and the bid-ask spread. Journal of Financial Economics 53, 255-287.
13. Cohen, K., Maier, S., Schwartz, R., Whitcomb, D., 1981. Transaction costs, order placement strategy, and existence of the bid-ask spread. Journal of Political Economy 89, 287-305.
14. Copeland, T., Galai, D., 1983. Information effects on the bid-ask spread. Journal of Finance 38, 1457-1469.
15. De Jong, F., Nijman, T., Roell, A., 1996. Price effects of trading and components of the bid-ask spread on the Paris Bourse. Journal of Empirical Finance 3, 193-213.
16. Demsetz, H., 1968. The costs of transacting. Quarterly Journal of Economics 82, 33-53.
17. Easley, D., O'Hara, M., 1987. Price, trade size and information in securities markets. Journal of Financial Economics 19, 69-90.
18. Foucault, T., 1999. Order flow composition and trading costs in a dynamic limit-order market. Journal of Financial Markets 2, 193-226.
19. Frino, A., McCorry, M.S., 1995. A comparison of liquidity between electronic open limit order book and specialist market structures: evidence from cross-listed securities on the Australian and New York Stock Exchanges, Working paper, University of Sydney.
20. George, T., Hwang, C.Y., 1995. Transitory price changes and price-limit rules: evidence from the Tokyo Stock Exchange. Journal of Financial and Quantitative Analysis 30, 313-327.
21. George, T., Kaul, G., Nimalendran, M., 1991. Estimation of the bid-ask spread and its components: a new approach. Review of Financial Studies 4, 623-656.
22. Glosten, L., 1994. Is the electronic open limit-order book inevitable? Journal of Finance 49, 1127-1161.
23. Glosten, L., Harris, L., 1988. Estimating the components of the bid-ask spread. Journal of Financial Economics 21, 123-142.
24. Glosten, L., Milgrom, P., 1985. Bid, ask, and transaction prices in a specialist market with heterogeneously informed agents. Journal of Financial Economics 14, 71-100.
25. Goodhart, C., O'Hara, M., 1997. High frequency data in financial markets: issues and applications. Journal of Empirical Finance 4, 73-114.
26. Greene, J., 1996. The impact of limit-order executions on trading costs in New York Stock Exchange stocks, Working paper, Georgia State University.
27. Hamao, Y., 1992. Tokyo Stock Exchange. In: Newman, P., Milgate, M., Eatwell, J. (Eds.), The New Palgrave Dictionary of Money and Finance. Macmillan Press, London, pp. 664-886.
28. Hamao, Y., Hasbrouck, J., 1995. Securities trading in the absence of dealers: trades and quotes in the Tokyo Stock Exchange. Review of Financial Studies 8, 849-878.
29. Handa, P., Schwartz, R., 1996. Limit-order trading. Journal of Finance 51, 1835-1861.
30. Harris, L., Hasbrouck, J., 1996. Market vs. limit orders: the SuperDot evidence on order submission strategy. Journal of Financial and Quantitative Analysis 31, 213-231.
31. Hasbrouck, J., 1991a. Measuring the information content of stock trade. Journal of Finance 46, 179-207.
32. Hasbrouck, J., 1991b. The summary informativeness of stock trades: an econometric analysis. Review of Financial Studies 4, 571-595.
33. Hasbrouck, J., 1988. Trades, quotes, inventories and information. Journal of Financial Economics 22, 229-252.
34. Hasbrouck, J., 1993. Assessing the quality of a security market: a new approach to transaction cost measurement. Review of Financial Studies 6, 191-212.
35. Hasbrouck, J., Ho, T., 1987. Order arrival, quote behavior and the return generating process. Journal of Finance 42, 1035-1048.
36. Hausman, J., Lo, A., MacKinlay, A.C., 1992. An ordered probit analysis of transaction stock prices. Journal of Financial Economics 31, 319-379.
37. Ho, T., Stoll, H., 1983. The dynamics of dealer markets under competition. Journal of Finance 38, 1053-1074.
38. Hollifield, B., Miller, A., Sandås, P., 1999. An empirical analysis of limit-order markets, Working paper, Carnegie Mellon University, Pittsburgh, PA.
39. Huang, R., Stoll, H., 1994. Market microstructure and stock return predications. Review of Financial Studies 7, 179-213.
40. Huang, R., Stoll, H., 1997. The components of the bid-ask spread: a general approach. Review of Financial Studies 10, 995-1034.
41. Kavajecz, K., 1999. A specialist's quoted depth and the limit-order book. Journal of Finance 54, 747-771.
42. Keim, D., Madhavan, A., 1996. The upstairs market for large-block transactions: analysis and measurement of price effects. Review of Financial Studies 9, 1-36.
43. Kim, K., Rhee, S.G., 1997. Price limit performance: evidence from the Tokyo Stock Exchange. Journal of Finance 52, 885-901.
44. Lehmann, B., Modest, D., 1994. Trading and liquidity on the Tokyo Stock Exchange: a bird's eye view. Journal of Finance 48, 1595-1628.
45. Lin, J.C., 1992. Order persistence, adverse selection, and gross profits earned by NYSE specialists, Working paper, Louisiana State University.
46. Lin, J.C., Sanger, G., Booth, G., 1995. Trade size and components of the bid-ask spread. Review of Financial Studies 8, 1153-1183.
47. Lindsey, R., Schaede, U., 1990. Specialist vs. saitori: market making in New York and Tokyo. Financial Analysts Journal 48, 48-57.
48. Madhavan, A., Cheng, M., 1997. In search of liquidity: block trades in the upstairs and downstairs markets. Review of Financial Studies 10, 175-203.
49. Madhavan, A., Smidt, S., 1993. A Bayesian model of intraday specialist pricing. Journal of Financial Economics 30, 99-134.
50. Madhavan, A., Richardson, M., Roomans, M., 1997. Why do security prices change? A transaction-level analysis of NYSE stocks. Review of Financial Studies 10, 1035-1064.
51. Newey, W., West, K., 1987. A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica 55, 703-708.
52. Rock, K., 1996. The specialist's order book and price anomalies. Review of Financial Studies, in press.
53. Roll, R., 1984. A simple implicit measure of the effective bid-ask spread in an efficient market. Journal of Finance 39, 1127-1139.
54. Seppi, D., 1997. Liquidity provision with limit orders and a strategic specialist. Review of Financial Studies 10, 103-150.
55. Stoll, H., 1978. The supply of dealer services in securities markets. Journal of Finance 33, 1133-1151.
56. Stoll, H., 1989. Inferring the components of the bid-ask spread: theory and empirical tests. Journal of Finance 44, 115-134.
57. Takagi, S., 1993. The Japanese equity market: past and present. Journal of Banking and Finance 13, 537-570.
58. Tinic, S., 1972. The economics of liquidity services. Quarterly Journal of Economics 66, 79-97.
59. Viswanathan, S., Wang, J.D., 1998. Market architecture: limit-order books versus dealership markets, Working paper, Duke University.