Abstract
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 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.
Keywords
Ask priceBid priceBid–ask spreadMeasure (data warehouse)EconometricsOrder (exchange)EconomicsSimple (philosophy)CovarianceValue (mathematics)Market microstructureMicroeconomicsFinancial economicsMathematicsComputer scienceStatisticsMonetary economicsMarket liquidityData mining
Related Publications
Information Effects on the Bid‐Ask Spread
ABSTRACT An individual who chooses to serve as a market‐maker is assumed to optimize his position by setting a bid‐ask spread which maximizes the difference between expected rev...
Liquidity and the 1987 stock market crash
T he Crash of October 1987 was a puzzling event puzzling not only for what happened on October 19, but also for what subsequently did not happen. In spite of the magnitude and m...
Filter Rules and Stock-Market Trading
IN THE recent literature there has been a considerable interest in the theory of random walks in stock-market prices. The basic hypothesis of the theory is that successive price...
The Effects of Beta, Bid-Ask Spread, Residual Risk, and Size on Stock Returns
Merton's [26] recent extension of the CAPM proposed that asset returns are an increasing function of their beta risk, residual risk, and size and a decreasing function of the pu...
Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?
A simple model that is commonly used to interpret movements in corporate common stock. price indexes asserts that real stock prices equal the present value of rationally expecte...
Publication Info
- Year
- 1984
- Type
- article
- Volume
- 39
- Issue
- 4
- Pages
- 1127-1139
- Citations
- 2749
- Access
- Closed
External Links
Social Impact
Altmetric
PlumX Metrics
Social media, news, blog, policy document mentions
Citation Metrics
2749
OpenAlex
Cite This
Richard Roll
(1984).
A Simple Implicit Measure of the Effective Bid‐Ask Spread in an Efficient Market.
The Journal of Finance
, 39
(4)
, 1127-1139.
https://doi.org/10.1111/j.1540-6261.1984.tb03897.x
Identifiers
- DOI
- 10.1111/j.1540-6261.1984.tb03897.x