文档介绍：Estimation of the Bid-Ask
Spread and ponents:
A New Approach
Thomas J. e
Ohio State University
Gautam Kaul
The University of Michigan
M. Nimalendran
University of Florida
We show that time variation in expected returns
and/or partial price adjustments lead to a down-
ward bias in previous estimators of both the spread
and ponents. We introduce a new approach
that provides unbiased and efficient estimators of
ponents of the spread. We find that between
77 and 97 percent of the downward bias in pre-
vious spread estimates is caused by time variation
in expected returns. More importantly, the adverse--
ponent, though significant, accounts
for a much smaller proportion (8 to 13 percent)
of the quoted spread at least for small trades, than
the proportion (over 40 percent) previously
reported in the literature. Order processing costs
are the ponent of quoted spreads.
We appreciate ments and suggestions made by Victor Bernard, Michael
Bradley, Jennifer Conrad, Harry DeAngelo, Stanley Kon, Gregory Niehaus.
Michael Ryngaert, Nejat Seyhun, Chester Spatt, Robert Whaley, and seminar
participants at Duke University, the University of Florida, The University of
Michigan, and the University of North Carolina. We are especially grateful
to Charles Lee for providing us with some data critical to our analysis, and
to Donald Keim and the referee, Larry Glosten, for clarifying our thoughts
on some important issues. We would also like to thank Patti Lampatter for
preparing the manuscript. Partial funding for this project was provided by
the School of Business Administration, The University of Michigan. All cor-
respondence should be addressed to Gautam Kaul, School of Business
Administration, The University of Michigan, Ann Arbor, MI 48109.
The Review of Financial Studies 1991 Volume 4, number 4, pp. 623-656
© 1991 The Review of Financial Studies 0893-9454/91/$
In recent years, there has been growing interest