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| Author: | Jang, H. Venkatesh, P.C. |
| Title: | Consistency between predicted and actual bid-ask quote-revisions |
| Journal: | Journal of Finance
1991 : MAR, VOL. 46:1, p. 433-446 |
| Index terms: | SHARE PRICES FINANCIAL MODELS |
| Language: | eng |
| Abstract: | A "transaction" data-base is employed to study whether observed quote-revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid-ask spread. Actual quote-revisions are found to be consistent with the theoretical prediction in only 25 p.c. of the cases. Quote-revision patterns are strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote-revisions of the limit order book and the minimum 1/8 price-change rule. |
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