Large price movements and short-lived changes in spreads, volume, and selling pressure

Raymond M. Brooks, Jinwoo Park, Tie Su

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

In this paper we examine changes in dollar and relative bid-ask spreads of stocks following large price movements. We investigate large increases and decreases separately and link our results to current market microstructure theories on trading activities and spreads. We also look at changes in volume and selling pressure to interpret the changes in trading activity. Our results show that the market reacts differently to price increases and decreases. For large price decreases, trading increases on the sell side even when spreads have increased. For large price increases, trading increases on the buy side during a period of higher spreads. However, the increases in dollar spreads and price pressure are most pronounced at the end of trading day. Our results are consistent with microstructure models that link trading activities and costs to the level of asymmetric information.

Original languageEnglish (US)
Pages (from-to)303-316
Number of pages14
JournalQuarterly Review of Economics and Finance
Volume39
Issue number2
StatePublished - Jun 1 1999

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Keywords

  • Bid-ask spread
  • Market microstructure
  • Trading volume

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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