Dynamic asymmetries in bid-ask responses to innovations in the trading process

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dc.contributor.author Escribano, Álvaro
dc.contributor.author Pascual, Roberto
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned 2010-03-11T16:48:58Z
dc.date.available 2010-03-11T16:48:58Z
dc.date.issued 2000-06
dc.identifier.issn 2340-5031
dc.identifier.uri http://hdl.handle.net/10016/7271
dc.description.abstract This paper proposes a flexible structural model of quote formation to jointly study the dynamics between buyer-initiated and seller-initiated trades and the posterior bid and ask quote revisions. The empirical reduced form counterpart is a vector error correction (VEC) model for bid and ask quotes, with the spread as the cointegrating vector, that extends the bivariate vector autoregresive (VAR) model introduced by Hasbrouck (1991a). The empirical results for several NYSE common stocks reveal that there are informational gains by not averaging the quote revision process through the quote midpoint. We find evidence of asymmetric behavior in the responses of both ask and bid prices to the innovations in the trading process. Under similar market conditions, the bid dynamics after an unexpected seller-initiated trade show significant deviations relative to the ask dynamics after a similar unexpected buyer-initiated trade.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M Working papers. Economics
dc.relation.ispartofseries 2000-47-18
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Market microstructure
dc.subject.other Bid-ask quotes
dc.subject.other VEC models
dc.subject.other Adverse-selection costs
dc.title Dynamic asymmetries in bid-ask responses to innovations in the trading process
dc.type workingPaper
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
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