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Decomposing the bid-ask spread in the Brazilian market: an intraday framework

Author

Listed:
  • Marcelo Brutti Righi

    (Federal University of Santa Maria)

  • Kelmara Mendes Vieira

    (Federal University of Santa Maria)

  • Daniel Arruda Coronel

    (Federal University of Santa Maria)

  • Reisoli Bender Filho

    (Federal University of Santa Maria)

  • Paulo Sergio Ceretta

    (Federal University of Santa Maria)

Abstract

In this paper, we identify the bid-ask spread components in the Brazilian market at intraday high frequency. To do so, we use data from all stocks that compose the Ibovespa in 10-minute frequencies from January to March of 2013. We use the model of Huang and Stoll (1997). Preliminary results indicate that there is a relatively stable pattern in the temporal evolution of the means of the bid-ask spread percentage with a distinct seasonal effect linked to the opening and closing of the Brazilian market. Regarding the proportion of components, adverse selection costs exhibit the lowest participation in the bid-ask spread of stocks in the Brazilian market (approximately 3%); inventory holding costs have the largest participation (approximately 52%), followed by the order processing costs component (45%). The presented results highlight the importance of liquidity over information asymmetry as the observed pattern diverges from those obtained in previous studies conducted in developed markets.

Suggested Citation

  • Marcelo Brutti Righi & Kelmara Mendes Vieira & Daniel Arruda Coronel & Reisoli Bender Filho & Paulo Sergio Ceretta, 2014. "Decomposing the bid-ask spread in the Brazilian market: an intraday framework," Economics Bulletin, AccessEcon, vol. 34(3), pages 2010-2023.
    • Handle: RePEc:ebl:ecbull:eb-14-00042
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    References listed on IDEAS

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    JEL classification:

    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets

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