Trade Size and Components of the Bid-Ask Spread

REVIEW OF FINANCIAL STUDIES, Vol. 8 No. 4

Posted: 9 Jul 1998

See all articles by Ji-Chai Lin

Ji-Chai Lin

Hong Kong PolyU

G. Geoffrey Booth

Michigan State University; The Citadel, The Military College of South Carolina

Gary C. Sanger

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Abstract

The relation between theorized components of the bid-ask spread and trade size for a sample of NYSE firms is examined. We find that the adverse selection component increases uniformly with trade size. Conversely, order processing costs decrease with increases in trade size for all but the largest trades. We find that order persistence decreases with trade size. The adverse selection component is the highest at the beginning and lowest at the end of the day for all but the largest trades. Trades of NYSE firms executed on regional exchanges or Nasdaq contain a large order processing cost component but no significant adverse information effect.

JEL Classification: G14

Suggested Citation

Lin, Ji-Chai and Booth, G. Geoffrey and Sanger, Gary C., Trade Size and Components of the Bid-Ask Spread. REVIEW OF FINANCIAL STUDIES, Vol. 8 No. 4, Available at SSRN: https://ssrn.com/abstract=7169

Ji-Chai Lin

Hong Kong PolyU ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

G. Geoffrey Booth (Contact Author)

Michigan State University ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

The Citadel, The Military College of South Carolina ( email )

171 Moultrie St.
Charleston, SC 29409
United States

Gary C. Sanger

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

2163 CEBA
Baton Rouge, LA 70803-6308
United States
225-578-6353 (Phone)
225-578-6366 (Fax)

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