Message-ID: <4594717.1075858477032.JavaMail.evans@thyme> Date: Fri, 11 May 2001 09:04:27 -0700 (PDT) From: kaminski@enron.com To: vkaminski@aol.com Subject: FW: literature research on "Bid-Offer Spread" Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Kaminski, Vince J. X-To: 'vkaminski@aol.com' X-cc: X-bcc: X-Folder: \Vince_Kaminski_Jun2001_10\Sent Items X-Origin: Kaminski-V X-FileName: vkamins.pst -----Original Message----- From: =09Lu, Zimin =20 Sent:=09Friday, May 11, 2001 10:52 AM To:=09Lee, Bob Cc:=09Kaminski, Vince J.; Gibner, Stinson Subject:=09literature research on "Bid-Offer Spread" Bob, I used Econ search engin, searched 67 journals about "bid-offer spread" for= mation, and found latest research on this subject. Some abstracts are attached, it seems a l= ot of studies are already done. Those titles are very relevent to us. The address for the search engin is http://www.elsevier.nl/cgi-bin/cas/sear= ch/search.cgi?jrnlid=3Dfinec. Could you find out how to become a member so= that we can get these papers on line. Zimin -------- Search Results ------ Journal of Economic Dynamics and Control Volume 21, Issue 8-9, 18-June-1997=20 J. Economic Dynamics And Control Vol. 21 (8-9) pp. 1471-1491 Copyright (c) 1997 Elsevier Science B.V. All rights reserved. Order flow and the bid-ask spread: An Empirical Probability Model Of Screen= -Based Trading=20 a Tim Bollerslev b Ian Domowitz c Jianxin Wang a , Department of Economics, Rouss Hall, University of Virginia, Charlottes= ville, VA 22901, USA , NBER, Cambridge, MA 02138, USA b , Department of Economics, Northwestern University, Evanston, IL 60208, U= SA c , School of Banking and Finance, University of New South Wales, Kensingto= n, NSW 2033, Australia Abstract A probabilistic framework for the analysis of screen-based trading activity= is presented. Probability functions are derived for the stationary distrib= utions of the best bid and offer, conditional on the order flows. By identi= fying the unobservable order and acceptance flows, our estimation method pe= rmits the prediction of the stationary distributions of other market statis= tics. A test is proposed that allows a comparison of predicted and sample b= id-ask spread distributions taking parameter estimation error into account.= The methodology is applied to the screen-based interbank foreign exchange = market, using continuously recorded quotes on the Deutschemark/US dollar ex= change rate.=20 Keyword(s): Screen-based trading; Limit order book; Order flow; Bid-ask spr= eads; Statistical model evaluation; Foreign exchange quotations Journal of Banking & Finance Volume 18, Issue 1, 01-January-1994=20 J. Banking And Finance Vol. 18 (1) pp. 199-206 Copyright (c) 1997 Elsevier Science B.V. All rights reserved. Variance increases following large stock distributions: the role of changin= g bid--ask spreads and true variances=20 a David R. Peterson a Pamela P. Peterson a , Florida State University, Tallahassee, FL, USA Received 1 June 1992; Revised 1 December 1992 Abstract In this study we examine two factors affecting variance increases following= stock distributions: changing bid--ask spreads and the true variability of= the underlying value of the firm. Employing data from the CRSP NASDAQ and = NMS files, we find a relatively minor role for changing spreads. Increases = in true variances are the major component of variance increases with change= s in return autocorrelations playing an important role.=20 Keyword(s): Stock distributions ; Return variances ; Bid--ask spreads ; Ret= urn autocorrelations Journal of Financial Markets Volume 1, Issue 1, 30-April-1998=20 J. Financial Markets Vol. 1 (1) pp. 89-119 Copyright (c) 1998 Elsevier Science B.V. All rights reserved. Bid--ask spreads with indirect competition among specialists=20 a Thomas Gehrig b Matthew Jackson a , Institut zur Erforschung der wirtschaftlichen, Entwicklung, Universit?t= Freiburg, D-79085 Freiburg, Germany b , Humanities and Social Sciences 228-77, California Institute of Technolo= gy, Pasadena, CA 91125, USA Abstract We examine the prices quoted by specialists (or dealers) who have monopoly = power to set prices (bids and asks) for a given asset, but who face indirec= t competition from other specialists who trade in related assets. In the co= ntext of a simple model where investors have mean-variance preferences, we = characterize the equilibrium bids and asks quoted by K specialists in N ass= ets, where some specialists may control more than one asset. We compare the= equilibrium spreads as the number (and factor structure) of the assets eac= h specialist controls is varied. It is shown that for some constellations o= f initial portfolio holdings and asset covariance it is socially preferred = to have competing specialists, while for others it is socially preferred to= have their actions coordinated (or to have one specialist control several = assets). In a simple factor model, we show how the optimal specialist contr= ol structure depends on whether the assets trade as substitutes or compleme= nts. In some situations it is beneficial to have specialist power concentra= ted within industries, in other situations, across industries, and in yet o= ther situations, not to be concentrated at all. ? 1998 Elsevier Science B.V= . All rights reserved.=20 JEL Classification: D43; G12 Journal of Financial Markets Volume 2, Issue 2, 20-May-1999=20 J. Financial Markets Vol. 2 (2) pp. 179-191 Copyright (c) 1999 Elsevier Science B.V. All rights reserved. Explaining the intra-day variation in the bid--ask spread in competitive de= alership markets -- A research note=20 a Eric J. Levin a b Robert E. Wright a , Department of Economics University of Stirling, Stirling, Scotland FK9 = 4LA, UK b , Centre for Economic Policy Research, 25-28 Old Burlington Street, Londo= n, England W1X 1LB, UK Abstract There are many possible explanations for variation in the inside bid--ask s= pread during the trading day, including informed trading, price inelastic m= arket demand, price discovery, statistical artefact and market concentratio= n. Each of these explanations is examined for consistency with respect to b= oth the inside and average bid--ask spread, observed both inside and outsid= e the mandatory quote period in the London Stock Exchange. ? 1999 Elsevier = Science B.V. All rights reserved.=20 JEL Classification: G1 Keyword(s): Bid--ask spread; Competitive dealership markets Journal of International Financial Markets, Institutions & Money Volume 9, Issue 2, 01-April-1999=20 J. Int. Financial Markets Vol. 9 (2) pp. 115-128 Copyright (c) 1999 Elsevier Science B.V. All rights reserved. Asymmetric information and the bid-ask spread: an empirical comparison betw= een automated order execution and open outcry auction=20 a Jianxin Wang a , School of Banking and Finance, University of New South Wales, , Sydney = 2052, Australia Received 1 April 1998; Accepted 1 September 1998 Abstract This study examines the components of the bid-ask spread on the Sydney Futu= res Exchange. The Exchange uses open outcry auction for daytime trading, an= d switches to a screen-based automated order execution system at 16:30 h fo= r overnight trading. After controlling for proxies of order flow characteri= stics, the study finds that screen-based traders are more sensitive to mark= et volatility than floor-based traders in setting the bid-ask spread. Sprea= ds from floor trading have a smaller adverse information component but a la= rger order processing cost component relative to screen trading. The result= s suggest that floor traders can better assess the presence of adverse info= rmation than screen traders.=20 ? All rights reserved.=20 Keyword(s): Trading mechanism; Bid-ask spread; Information asymmetry Journal of Financial Economics Volume 53, Issue 2, 01-August-1999=20 Journal Of Financial Economics Vol. 53 (2) pp. 255-287 Copyright (c) 1999 Elsevier Science B.V. All rights reserved. Limit orders and the bid--ask spread=20 Kee H. Chung Bonnie F. Van Ness Robert A. Van Ness University of Memphis, Memphis, TN 38152, , , USA Marshall University, Huntington, WV 25755, , , USA Received 29 December 1997; Accepted 23 September 1998 Abstract We examine the role of limit-order traders and specialists in the market-ma= king process. We find that a large portion of posted bid--ask quotes origin= ates from the limit-order book without direct participation by specialists,= and that competition between traders and specialists has a significant imp= act on the bid--ask spread. Specialists' spreads are widest at the open, na= rrow until late morning, and then level off. The U-shaped intraday pattern = of spreads largely reflects the intraday variation in spreads established b= y limit-order traders. Lastly, the intraday variation in limit-order spread= s is significantly related to the intraday variation in limit-order placeme= nts and executions.=20 JEL Classification: G14 Keyword(s): Limit order; Bid--ask spread; Specialists Journal of Economic Dynamics and Control Volume 19, Issue 4, 01-January-1995=20 J. Economic Dynamics And Control Vol. 19 (4) pp. 683-710 Copyright (c) 1997 Elsevier Science B.V. All rights reserved. Dealer market structure, outside competition, and the bid--ask spread=20 a Paul A Laux a , Department of Banking and Finance, Case Western Reserve University, Cle= veland, OH 44106-7235, USA Received 1 November 1993; Accepted 1 April 1994 Abstract We investigate the linkages between the number of dealers making markets in= a security, the extent of outside (or nondealer) competition, and the mark= et bid--ask spread for NASDAQ NMS stocks. The investigation is guided by a = model that emphasizes dealers' interactions as their inventories change, an= d predicts that the extent of outside competition limits the bid--ask sprea= d and the number of dealers. We hypothesize that the extent of outside mark= et making capital in a stock is related to that stock's institutional holdi= ngs. Evidence shows that the extent of institutional holdings relative to t= rading volume proxies for outside competition. For stocks with little outsi= de competition, the spread is large even though the number of dealers is al= so larger than for comparable stocks. The component of the spread related t= o outside market making capital is economically significant (about (1)/(2) = to 1 percent of price). The composition of volume as to trade size and trad= e frequency, which is related to the level of institutional holdings, also = influences the spread.=20 Keyword(s): Bid--ask spread; Nasdaq; Institutional investors; Market micros= tructure JEL Classification: G12