BID-ASK SPREAD AND OWNERSHIP STRUCTURE

In this paper we examine the relation between bid-ask spread and ownership structure variables based on 1985 data for 1,063 NYSE firms. We document a nonpositive relation between bid-ask spread and insider ownership and conclude that spread is unrelated to insider trading. We also find a robust significantly negative relation between spread and institutional ownership. Finally, we find a positive but generally insignificant relation between spread and blockholdings. Overall, our evidence does not support the predictions of asymmetric information models in markets with anonymous trading.     

Ownership concentration, voluntary disclosures and information asymmetry in New Zealand

This paper investigates the impact of different classes of ownership concentration on information asymmetry conditional upon corporate voluntary disclosures in New Zealand. The current paper attempts to extend this stream of research by incorporating three mutually exclusive ownership structures and considering the interactive relationship between such ownership structures and corporate voluntary disclosures. Results reveal that ownership concentration in general is significantly positively associated with bid-ask spreads (proxy for information asymmetry) observed around annual report release dates. This finding supports the adverse selection hypothesis and importantly this effect is found to be most pronounced for financial institutions and management-controlled ownership categories. When voluntary disclosure is taken into account, the findings demonstrate that disclosures significantly attenuate information asymmetry risk associated with ownership concentration. This effect is particularly pronounced for firms with management-controlled ownership structures. The findings highlight the importance of corporate disclosures under concentrated ownership structures especially management-controlled ownership structures in reducing information asymmetry and enhancing market efficiency in New Zealand.     

Transactions Costs and Holding Periods for Common Stocks

Amihud and Mendelson (1986) and Constantinides (1986) provide a theoretical basis for the proposition that assets with higher transactions costs are held by investors for longer holding periods, and vice versa. We examine average holding periods and bid-ask spreads for Nasdaq stocks from 1983 through 1991 and for New York Stock Exchange (NYSE) stocks from 1975 through 1989 and find strong evidence that, as predicted, the length of investors' holding periods is related to bid-ask spreads. We also find that the relation between holding periods and bid-ask spreads is much stronger on Nasdaq, where spreads are larger, than on the NYSE, where spreads are smaller.     

Liquidity, analysts, and institutional ownership

In this paper, we investigate the empirical relationship between institutional ownership, number of analysts following and stock market liquidity. We find that firms with larger number of financial analysts following have wider spreads, lower market quality index, and larger price impact of trades. However, we find that firms with higher institutional ownership have narrower spreads, higher market quality index, and smaller price impact of trades. In addition, we show that changes in our liquidity measures are significantly related to changes in institutional ownership over time. These results suggest that firms may alleviate information asymmetry and improve stock market liquidity by increasing institutional ownership. Our results are remarkably robust to different measures of liquidity and measures of information asymmetry.     

Seasonalities in NYSE Bid-Ask Spreads and Stock Returns in January

Using end-of-month bid-ask spreads for 540 NYSE stocks over the period 1982–1987, we document a seasonal pattern in which both relative and absolute spreads decline from the end of December to the end of the following January. Cross-sectional regressions do not, however, provide evidence of a significant correlation between changes in spreads at the turn of the year and January stock returns. Either there is no cause and effect relation between the coincidental seasonals in bid-ask spreads and January returns for NYSE stocks or the data are too “noisy” to reveal any relation.     

Maturity Effect on Bid-Ask Spreads of OTC Currency Options

The paper ascertains the relation between bid-ask spreads and the contract maturity of OTC currency options. Contrary to previous findings in the futures market, spreads of currency options are found to be negatively related to the contract's term-to-maturity. The negative relation persists even after controlling for the effects of price risks, competition, and trading activity. The pronounced differences in the term-to-maturity results are attributable to the market risk effect and differences in the market structure of options and futures markets.     

Auditing standards,increased accounting disclosure,and information asymmetry: Evidence from an emerging market

The interest in accounting disclosure and audit quality by academics, practitioners, and regulators heightened following the various financial reporting scandals, and subsequent legislative and professional response to these scandals. An important question is whether the implementation of stricter auditing standards such as those mandated by the US Sarbanes-Oxley Act would improve the information environment of firms whose shares are publicly traded. In this paper, I investigate the link between information asymmetry, measured by bid-ask spread, and increased accounting disclosures following the adoption of new auditing standards in China—an environment in which disclosure hitherto was relatively low. I report the following primary results of the statistical analyses. First, information asymmetry cost is substantial in the Chinese order-driven emerging markets. Second, the firms in the sample experienced significant reductions in their bid-ask spreads subsequent to the adoption of the new auditing standards. Third, the reductions in the bid-ask spreads were abrupt and permanent. However, no significant result is found for firms in the control group with foreign ownership, whose financial statements were prepared in accordance with international accounting standards and were audited with international auditing standards. The results have implications for policy makers and regulators in general, and those in emerging markets in particular.     

BID-ASK SPREAD COMPONENTS AROUND ANTICIPATED ANNOUNCEMENTS

In this paper I re-examine spreads around dividend and earnings announcements and provide new evidence on patterns by examining the components of the bid-ask spread. Transaction data are examined through a recently developed spread decomposition model that decomposes the bid-ask spread into a fixed (execution) component and an adverse selection component. In addition, this model does not rely on a constant spread as previous spread decomposition models require. The results show that around earnings announcements, the bid-ask spreads and spread components have significant changes indicating that the anticipated announcement is informative. However, the actual public announcement of a dividend does not alter the bid-ask spread and spread components of actively traded securities.     

The liquidity of automated exchanges: new evidence from German Bund futures

Previous literature has suggested that automated exchanges such as the Deutsche Terminborse (DTB) may be less liquid than their open-outcry counterparts such as the London International Financial Futures Exchange (LIFFE), although evidence provided on this issue has been mixed. This paper provides new evidence on the relative magnitudes of bid-ask spreads in the Bund contract traded on the DTB and LIFFE using intraday data from a period in which each exchanges share of total Bund trading was closer than previous research. The findings suggest that quoted bid-ask spreads are wider on the LIFFE than the DTB, even after controlling for their determinants. Furthermore, bid-ask spreads on the DTB increase more rapidly as price volatility increases relative to the LIFFE. Overall, this evidence implies that while automated exchanges are capable of providing more liquidity than floor traded exchanges, the relative performance of automated exchanges deteriorates during periods of higher volatility.     

Explaining co-movements between equity and CDS bid-ask spreads

In this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads.