Gregoriou and Skerratt are from Brunel Business School. Ioannidis is from Bath Business School. They would like to thank I/B/E/S for access to their analysts’ forecasts data, and an anonymous referee and Martin Walker (the editor) for their comments on a previous version of the paper.
Information Asymmetry and the Bid-Ask Spread: Evidence From the UK
Article first published online: 16 NOV 2005
Journal of Business Finance & Accounting
Volume 32, Issue 9-10, pages 1801–1826, November 2005
How to Cite
Gregoriou, A., Ioannidis, C. and Skerratt, L. (2005), Information Asymmetry and the Bid-Ask Spread: Evidence From the UK. Journal of Business Finance & Accounting, 32: 1801–1826. doi: 10.1111/j.0306-686X.2005.00648.x
- Issue published online: 16 NOV 2005
- Article first published online: 16 NOV 2005
- (Paper received January 2002, revised and accepted January 2005)
- analysts’ forecasts;
- trading volume;
- volatility of returns
Abstract: The generally accepted factors that determine the bid-ask spread are volatility, trading volume and market value (Atkins and Dyl, 1997; Glosten and Harris, 1988; and Menyah and Paudyal, 2000). Following Kim and Verrecchia (1994) we include a measure of the disagreement in analysts’ earnings forecasts in our model of the bid ask spread. This measure serves as a proxy for the informational disadvantage of market makers with respect to informed traders. Market makers respond to the additional risk by increasing the bid-ask spread. We find that the disagreement amongst analysts is significant for horizons up to and including six months (and with the hypothesised sign) in explaining FTSE 100 company spreads, rendering strong empirical support for our model.