An Analysis of Intraday Patterns in Bid/Ask Spreads for NYSE Stocks

  • Author(s): THOMAS H. MCINISH, ROBERT A. WOOD
  • Published: Apr 30, 2012
  • Pages: 753-764
  • DOI: 10.1111/j.1540-6261.1992.tb04408.x

ABSTRACT

The behavior of time‐weighted bid‐ask spreads over the trading day are examined. The plot of minute‐by‐minute spreads versus time of day has a crude reverse J‐shaped pattern. Schwartz identifies four determinants of spreads: activity, risk, information, and competition. Using a linear regression model, a significant relationship between these same factors and intraday spreads is demonstrated, but dummy variables for time of day have a reverse J‐shape. For given values of the activity, risk, information and competition measures, spreads are higher at the beginning and end of the day relative to the interior period.

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