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The equilibrium dynamics for an endogeneous bid-ask spread in a monopolistic financial market

Author

Listed:
  • Joao Amaro de Matos
  • Joao Sobral do Rosario

Abstract

This paper presents an endogeneous model for the stochastic dynamics of the bid-ask spread of prices of nancial assets. The model is derived introducing an intermediary and inventory costs in the setting of equilibrium financial markets as described by Platen and Rebolledo (1996).

Suggested Citation

  • Joao Amaro de Matos & Joao Sobral do Rosario, 2000. "The equilibrium dynamics for an endogeneous bid-ask spread in a monopolistic financial market," Nova SBE Working Paper Series wp389, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp389
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    File URL: https://run.unl.pt/bitstream/10362/83637/1/WP389.pdf
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    References listed on IDEAS

    as
    1. Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September.
    2. Eckhard Platen & Rolando Rebolledo, 1996. "Principles for modelling financial markets," Published Paper Series 1996-3, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. Ho, Thomas S Y & Macris, Richard G, 1984. "Dealer Bid-Ask Quotes and Transaction Prices: An Empirical Study of Some AMEX Options," Journal of Finance, American Finance Association, vol. 39(1), pages 23-45, March.
    4. Amihud, Yakov & Mendelson, Haim, 1980. "Dealership market : Market-making with inventory," Journal of Financial Economics, Elsevier, vol. 8(1), pages 31-53, March.
    5. Garman, Mark B., 1976. "Market microstructure," Journal of Financial Economics, Elsevier, vol. 3(3), pages 257-275, June.
    6. Joel Hasbrouck, 1999. "The Dynamics of Discrete Bid and Ask Quotes," Journal of Finance, American Finance Association, vol. 54(6), pages 2109-2142, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Chen, Bin & Hong, Yongmiao, 2012. "Testing For The Markov Property In Time Series," Econometric Theory, Cambridge University Press, vol. 28(1), pages 130-178, February.
    2. Matos, João Manuel Gonçalves Amaro de & Fernandes, Marcelo, 2001. "Testing the Markov property with ultra high frequency financial data," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 414, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).

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    More about this item

    Keywords

    Bid-ask spread; intermediary; dynamic equilibrium;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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