We investigate the path through which an information or liquidity shock reveals itself in subsequent adjustments of the bid-ask spreads and corresponding depths. Our simple threeequation error correction model incorporates both the short term and long term effects of the spread and depths on the dynamics of adjustment. In particular, we study both the stochastic properties of spreads and depths...

In this paper we analyze and interpret the quote price dynamics of 100 NYSE stocks stratified by trade frequency. We specify an error-correction model for the log difference of the bid and the ask price with the spread acting as the error-correction term, and include as regressors the characteristics of the trades occurring between quote observations, if any. From this model we are also able to...

We propose a framework for studying optimal market making policies in a limit order book (LOB). The bid-ask spread of the LOB is modelled by a Markov chain with finite values, multiple of the tick size, and subordinated by the Poisson process of the tick-time clock. We consider a small agent who continuously submits limit buy/sell orders at best bid/ask quotes, and may also set limit orders at ...

Copyright 2009 by Julieta Frank and Philip Garcia. All rights reserved. Readers may make verbatim copies of this document for non‐commercial purposes by any means, provided that this copyright notice appears on all such copies. Abstract Understanding the determinants of liquidity costs in agricultural futures markets is hampered by a need to use proxies for the bid-ask spread which are often bi...

This paper examines why rms buy back at prices below the average market price. The results of the empirical analysis suggest that contrarian trading is the major driver of the di erence between average monthly repurchase price and average monthly market price. There is also evidence in favor of the notion that at least some rms are able to time the market by exploiting private information. More...