Title: | The Dynamics of Discrete Bid and Ask Quotes |
Authors: | Hasbrouck, Joel |
Issue Date: | 16-Feb-1996 |
Series/Report no.: | FIN-95-023 |
Abstract: | This analysis models discrete quotes as arising from two continuous random variables, the efficient price and a cost of quote exposure (information and processing costs). The former less the latter rounded down to the next tick yields the bid; the former plus the latter rounded up yields the ask. To deal with situations in which the cost of quote exposure possesses both stochastic and deterministic components, the paper proposes a nonlinear state-space estimation method. The method is applied to intraday quotes at fifteen-minute intervals for Alcoa (a randomly chosen Dow stock). The results confirm the existence of deterministic and stochastic components of the cost that are of roughly comparable magnitudes. |
URI: | http://hdl.handle.net/2451/27130 |
Appears in Collections: | Finance Working Papers |
Files in This Item:
File | Description | Size | Format | |
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wpa95023.pdf | 1.2 MB | Adobe PDF | View/Open |
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