This paper provides a numerical method for demonstrating that bid-ask spreads increase with information asymmetry or the probability of insider trading. These spreads also decrease throughout the trading day. Average daily spreads are a non-monotone function of information asymmetry. This result brings into question empirical results showing that higher levels of inside information lead to higher expected returns.
| Identifer | oai:union.ndltd.org:CLAREMONT/oai:scholarship.claremont.edu:cmc_theses-1256 |
| Date | 01 January 2011 |
| Creators | Potterton, Kevin |
| Publisher | Scholarship @ Claremont |
| Source Sets | Claremont Colleges |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | CMC Senior Theses |
| Rights | © 2011 Kevin Potterton |
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