Copeland, Thomas E. and Dan Galai, 1983, Information effects on the bid-ask spread, Journal of Finance 38, 1457-1469.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....and Hagerman (1974) and Stoll (1976, 1978) are among the more notable studies of stock price spreads. Smith and Whaley (1994) examine the behavior of S P 500 futures spreads. More recently, the emphasis has turned to the costs of adverse selection. Here, the reader is referred to studies such as Copeland and Galai (1983), Glosten and Milgrom (1985) and Admati and Pfleiderer (1988) 23 depending upon whether the proportionate increase in aggregate volume is greater than or less than the proportionate increase in the number of market makers. Hence, the relation of the spread to trading volume may be ambiguous. ....

....a market order to buy by selling at the ask, he needs protection against the price rising above 23 Here we model the size of the bid ask spread as the value of an at the money futures option with an exercise price equal to the price at which the market maker provides immediacy. In contrast, Copeland and Galai (1983) model the bid ask spread as a straddle in which the market maker provides a prospective trader with an out of the money call option to buy at the ask price and an out of the money put option to sell at the bid price. 32 his sales price. In the first case, the market maker needs to buy an ....

Copeland, Thomas E. and Dan Galai, 1983, Information effects on the bid-ask spread, Journal of Finance 38, 1457-1469.

....observed liquidity improvement in auction settings can be attributed to reductions in trader anonymity and the induced change in the probability of informed trading. Second, our study is related to the theoretical literature on the relation between information and bid ask spreads. For example, Copeland and Galai (1983), Glosten and Milgrom (1985) and Easley and O Hara (1987) show that market makers quote a wider 3 spread when there are informed traders and use the revenues from liquidity traders to offset losses to informed traders. We aim to provide empirical support for the hypothesized link between bid ask ....

....liquidity. This connection between informed trading and market liquidity has long been recognized in the literature. In this literature, market liquidity is often represented by the bid ask spread and market makers pool informed and uninformed traders in setting bid and ask quotes. For example, Copeland and Galai (1983), Glosten and Milgrom (1985) and Easley and O Hara (1987) study information effects on bid ask spreads. In these models, the presence of informed trading contribute to a widening of the bid ask spread, and market makers lose from trading with informed traders but offset these losses with gains ....

Copeland, Thomas and Dan Galai, 1983, Information Effects on the Bid-Ask Spread, Journal of Finance 38, 1457-1469.

....spread through the use of two main models. The models of inventory control of Stoll (1978) Amihud and Mendelson (1980) Ho and Stoll (1981) explain the spread as the market makers compensation for taking on positions that distance him from his optimal position. The adverse selection models of Copeland and Galai (1983), Glosten and Milgrom (1985) and Easley and OHara (1987) explain the spread as the compensation marketmakers seek from the risk of trading with a better informed counterparty. 8 results support the hypothesis that market makers take into account inventory holding costs when quoting prices, but ....

Copeland, T and Galai, D (1983), Information effects of the bid-ask spread, ##################, 38, pages 1,457-69.

....that the market orders that the specialist does not allow to cross with the limit order book are those that are most profitable ex post, a finding that is consistent with the results of this paper. We extend Ready s work to establish the link between stopping and order book information. Though Copeland and Galai (1983) recognized that the option like characteristics of limit orders, only recently have researchers used standard option valuation techniques to study order book asymmetries. Such techniques are difficult to apply to limit orders because time to maturity is random. Lo, Mackinlay and Zhang (1998) ....

Copeland, Tom and Dan Galai, 1983, Information Effects on the Bid-Ask Spread, Journal of Finance 38, 1457-1469.

....that the volume provides information on the precision and dispersion of information signals, rather than serving as proxy for the information signal itself. It is widely documented in the literature that intraday return volatility and intraday variations of bid ask spreads are highly correlated (Copeland and Galai [1983], Grossman and Miller [1988] McInish and Wood [1992] and Walsh and Quek [1999] In summary, an information arrival would be expected to induce an increase in volatility and this would in turn have the effect of widening the bid ask spreads. We examine the impact of introducing bid ask spreads ....

Copeland, T., and Galai, D., 1983: "Information Effects on the Bid-Ask Spread," Journal of Finance, 38: 1457-1469.

....or specific trading rules Easley and O Hara 1992 . The market maker fixes a spread that compensates on average for the losses suffered from trading with the informed. These are the basic elements of the asymmetric information models that were introduced by Bagehot 1971 , analyzed by Copeland and Galai 1983 , and formalized and developed by Kyle 1985 , Glosten and Milgrom 1985 , Easley and O Hara 1987 , Admati and Pfleiderer 1988 , Foster and Viswanathan 1990, 1994 , and Allen and Gorton 1992 . A key element of asymmetric information models is that trades convey information. The specialist, ....

Copeland, Thomas E., and Dan Galai, 1983, Information effects on the bid-ask spread, Journal of Finance 38, 1457--1469.

....We obtain this series, denoted PREM t, monthly from Ibbotson Associates (1995) for the period 1963 1993. A second proxy is the bid ask spread for bills of the corresponding maturities. According to the existing market microstructure literature, the quoted bid ask spread has three components (Copeland and Galai, 1983; Glosten and Harris, 1988; Hasbrouck, 1988; and Stoll, 1989) the component due to order processing costs for market makers, a second reflecting their inventory holding costs, and finally the adverse selection component, which represents compensation for market makers risk in dealing with ....

Copeland, Thomas and Dan Galai, 1983, "Information Effects on the Bid-ask Spread," Journal of Finance 38, 1457-1469.

....or specific trading rules (Easley and O Hara (1992) The market maker fixes a spread which compensates on average for the losses suffered from trading with the informed. These are the basic elements of the asymmetric information models which were introduced by Bagehot (1971) analyzed by Copeland and Galai (1983), and formalized and developed by Kyle (1985) Glosten and Milgrom (1985) Easley and 3 O Hara (1987) Admati and Pfleiderer (1988) Foster and Viswanathan (1990, 1994) Allen and Gorton (1992) A key element of asymmetric information models is that trades convey information. The ....

Copeland, Thomas E., and Dan Galai, 1983, Information effects on the bid-ask spread, Journal of Finance 38, 1457-1469.

....of liquidity, and existing literature focuses on three types of costs: order processing costs, inventory effects, and the degree of adverse selection. Our focus in this paper is the adverse selection cost to market makers of transacting with informed traders, a cost first identified and modeled by Copeland and Galai (1983) and Glosten and Milgrom (1985) More recently, several methodologies have been developed for estimating the relative importance of adverse selection as a component of the spread. Glosten (1987) Glosten and Harris (1988) Stoll (1989) and George, Kaul and Nimalendran (1991) GKN] provide ....

Copeland, Thomas E. and Dan Galai, 1983, Information effects on the bid-ask spread, Journal of Finance 38, 1457-1469.

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Copeland, Thomas E., and Galai, Dan, 1983, Information Effects on the Bid-Ask Spread, Journal of Finance, 38(5), 1457-1469.

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