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Dispersion and Skewness of Bid Prices

Author

Listed:
  • Albert Menkveld

    (VU University Amsterdam)

  • Boyan Jovanovic

    (New York University)

Abstract

Competitive bidding by homogeneous agents in a first-price auction can yield a non-degenerate bid price distribution. This price dispersion is the unique equilibrium in a setting where bidders “pay to play.†Ex ante, bidders decide simultaneously on whether to play or not. Ex post, those who play submit their bid simultaneously not knowing who else is in the market. The price-dispersion result is applied to high-frequency bidding in limit-order markets. The parsimonious model fits the bid-price dispersion for S&P 500 stocks remarkably well.

Suggested Citation

  • Albert Menkveld & Boyan Jovanovic, 2016. "Dispersion and Skewness of Bid Prices," 2016 Meeting Papers 1395, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1395
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    References listed on IDEAS

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    Cited by:

    1. Tao Chen & Kam C. Chan & Haodong Chang, 2022. "Periodicity of trading activity in foreign exchange markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(2), pages 445-465, June.
    2. Marlene Haas & Marius Andrei Zoican, 2016. "Beyond the Frequency Wall: Speed and Liquidity on Batch Auction Markets," Post-Print hal-01484805, HAL.

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