Published September 1984
| public
Journal Article
A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market
- Creators
- Roll, Richard
Abstract
In an efficient market, the fundamental value of a security fluctuates randomly. However, trading costs induce negative serial dependence in successive observed market price changes. In fact, given market efficiency, the effective bid‐ask spread can be measured by Spread = √2−cov where "cov" is the first‐order serial covariance of price changes. This implicit measure of the bid‐ask spread is derived formally and is shown empirically to be closely related to firm size.
Additional Information
© 1984 the American Finance Association. I am grateful for the thoughtful and constructive comments of Gordon Alexander, Eugene Fama, Dan Galai, Jon Ingersoll, Eduardo Lemgruber, Ron Masulis, Mark Rubinstein, and the referee.Additional details
- Eprint ID
- 95131
- Resolver ID
- CaltechAUTHORS:20190501-103050384
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2019-05-01Created from EPrint's datestamp field
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2021-11-16Created from EPrint's last_modified field