文档介绍：ponents of the
Bid-Ask Spread: A General
Approach
Roger D. Huang
Hans R. Stoll
Vanderbilt University
A simple time-series market microstructure
model is constructed within which existing mod-
els of ponents are reconciled. We
show that existing models fail to pose the
spread into all ponents. Two alternative
extensions of the simple model are developed to
identify all ponents of the spread and to
estimate the spread at which trades occur. The
empirical results support the presence of a large
order ponent and smaller, albeit
significant, adverse selection and -
ponents. The ponents differ signifi-
cantly according to trade size and are also sen-
sitive to assumptions about the relation between
orders and trades.
The difference between the ask and the bid quotes —
the spread — has long been of interest to traders, reg-
ulators, and researchers. While acknowledging that
the bid-ask spread must cover the order processing
costs incurred by the providers of market liquidity,
researchers have focused on two additional costs of
market making that must also be reflected in the spread.
We have benefited from ments of seminar participants at Arizona
State University, Louisiana State University, Rice University, University of
California at Los Angeles, University of North Carolina at Chapel Hill, Uni-
versity of Southern California, Vanderbilt University, and the 1995 Asian
Pacific Finance Association Conference. We are also grateful to Ravi Jagan-
nathan (the editor) and two anonymous referees for ments. This
research was supported by the Dean’s Fund for Research and by the Finan-
cial Markets Research Center at the Owen Graduate School of Management,
Vanderbilt University. Address correspondence and send reprint requests
to Roger D. Huang, Owen Graduate School of Management, Vanderbilt
University, Nashville, TN 37203.
The Review of Financial Studies Winter 1997 Vol. 10, No. 4, pp. 995–1034
c 1997 The Review of Financial Studies 0893-9454/97