The Relative Contribution of Ask and Bid Quotes to Price Discovery

46 Pages Posted: 5 Feb 2009 Last revised: 7 Oct 2014

See all articles by Roberto Pascual

Roberto Pascual

Universidad de las Islas Baleares

Bartolomé Pascual-Fuster

Dep. Economia de la Empresa, Universitat Illes Balears (UIB)

Date Written: May 1, 2014

Abstract

For both the Spanish Stock Exchange (SSE) and the NYSE, we provide robust evidence of daily asymmetries in the contribution of ask and bid quotes to price discovery. These asymmetries are non-negligible, in the sense that they are not driven by noise. Asymmetries happen in 47.7% (62.8%) of the stock-day observations in our SSE (NYSE) sample. Asymmetries are of larger average magnitude among small caps. We also show that the ask (bid) quote leads in days with substantial excess of buying (selling) initiated trading, although the relationship has weakened over time and with the advent of high-frequency trading.

Keywords: Price discovery, order imbalance, quote quality, information shares, order driven markets, limit order book, NYSE, market microstructure

JEL Classification: G1

Suggested Citation

Pascual Gascó, Roberto and Pascual-Fuster, Bartolomé, The Relative Contribution of Ask and Bid Quotes to Price Discovery (May 1, 2014). Journal of Financial Markets, 20, 129-150 (2014), Available at SSRN: https://ssrn.com/abstract=1337999 or http://dx.doi.org/10.2139/ssrn.1337999

Roberto Pascual Gascó (Contact Author)

Universidad de las Islas Baleares ( email )

Ctra. de Valldemossa km 7,5
Departamento de Economia y Empresa
Palma, Baleares
Spain
+34 971 17 13 29 (Phone)
+34 971 17 23 89 (Fax)

Bartolomé Pascual-Fuster

Dep. Economia de la Empresa, Universitat Illes Balears (UIB) ( email )

Ctra. de Valldemossa km 7,5
Palma, Baleares 07122
Spain
+34 971 172652 (Phone)
+34 971 172389 (Fax)

HOME PAGE: http://www.uib.es/depart/deeweb/pdi/hdeebpf0/tomeupascual/index-personal.htm

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