TY - JOUR
T1 - Information asymmetry and the bid-ask spread: evidence from the UK
AU - Gregoriou, Andros
AU - Ioannidis, Christos
AU - Skerratt, L
PY - 2005
Y1 - 2005
N2 - The generally accepted factors that determine the bid‐ask spread are volatility, trading volume and market value (Atkins and Dyl, 1997; Glosten and Harris, 1988; and Menyah and Paudyal, 2000). Following Kim and Verrecchia (1994) we include a measure of the disagreement in analysts’ earnings forecasts in our model of the bid ask spread. This measure serves as a proxy for the informational disadvantage of market makers with respect to informed traders. Market makers respond to the additional risk by increasing the bid‐ask spread. We find that the disagreement amongst analysts is significant for horizons up to and including six months (and with the hypothesised sign) in explaining FTSE 100 company spreads, rendering strong empirical support for our model.
AB - The generally accepted factors that determine the bid‐ask spread are volatility, trading volume and market value (Atkins and Dyl, 1997; Glosten and Harris, 1988; and Menyah and Paudyal, 2000). Following Kim and Verrecchia (1994) we include a measure of the disagreement in analysts’ earnings forecasts in our model of the bid ask spread. This measure serves as a proxy for the informational disadvantage of market makers with respect to informed traders. Market makers respond to the additional risk by increasing the bid‐ask spread. We find that the disagreement amongst analysts is significant for horizons up to and including six months (and with the hypothesised sign) in explaining FTSE 100 company spreads, rendering strong empirical support for our model.
UR - https://onlinelibrary.wiley.com/doi/full/10.1111/j.0306-686X.2005.00648.x
U2 - 10.1111/j.0306-686X.2005.00648.x
DO - 10.1111/j.0306-686X.2005.00648.x
M3 - Article
SN - 0306-686X
VL - 32
SP - 1801
EP - 1826
JO - Journal of Business Fnance and Accounting
JF - Journal of Business Fnance and Accounting
IS - 9-10
ER -