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Dispersion and Skewness of Bid Prices

56 Pages Posted: 8 Jul 2014 Last revised: 15 Aug 2017

Boyan Jovanovic

New York University - Department of Economics

Albert J. Menkveld

VU University Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: August 14, 2017

Abstract

If one pays to play then ex-ante homogeneous bidders bid probabilistically in a simultaneous move game. If they bid, they draw their bid from a non-degenerate left-skewed price distribution. This result generalizes to a setting with two types of players ex ante: low-cost-low-value (low) and high-cost-high-value (high) types. The latter type bids more aggressively and might in fact be the only type to bid. The results explain bidding in Nasdaq by those who are high-frequency traders (HFTs) and those who are not. HFTs turn out to be the high types.

Suggested Citation

Jovanovic, Boyan and Menkveld, Albert J., Dispersion and Skewness of Bid Prices (August 14, 2017). Available at SSRN: https://ssrn.com/abstract=2463066 or http://dx.doi.org/10.2139/ssrn.2463066

Boyan Jovanovic

New York University - Department of Economics ( email )

19 w 4 st.
New York, NY 10012
United States

Albert J. Menkveld (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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