True Spreads Censored by Tick Size
A model of true spreads is developed using spread data from the Australian Stock Exchange. This spread model separates the true or intrinsic spread of a stock from the component of spread that is due to tick size. This enables the identiˉcation of excessive market spreads due to a large minimum tick size (large minimum price increment). The true or uncensored spreads are modelled as a LogNormal dis- tribution where the scale (mean) parameter of the distribution is a function of stock Turnover and Volatility, stock Price is not a deter- minant of true spreads. This is a powerful and intuitive result; true spread is a measure of the true cost of liquidity and this cost is a func- tion of the scarcity of liquidity (Turnover) and the risk of supplying liquidity (Volatility), nominal stock price is irrelevant to the cost of market liquidity. Observed or censored spreads are a result of partitioning the un- derlying continuous true spread distribution into discrete tick size in- tervals. Stock price is important in this partitioning and observed spreads are a function of stock price.
True Spread Censored Spread Observed Spread Tick Size Exchange Policy
Anthony Hall Paul Kofman James McCulloch
国际会议
西安
英文
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）