Market Microstructure Empirical Regularities: Behavior of the Bid-Ask Spread and Closing Prices
Article first published online: 9 MAR 2005
Volume 30, Issue 3, pages 541–565, August 1995
How to Cite
Branch, B. and Echevarria, D. P. (1995), Market Microstructure Empirical Regularities: Behavior of the Bid-Ask Spread and Closing Prices. Financial Review, 30: 541–565. doi: 10.1111/j.1540-6288.1995.tb00845.x
- Issue published online: 9 MAR 2005
- Article first published online: 9 MAR 2005
A substantial number of last reported transactions for stocks trading on the New York Stock Exchange occur inside the quoted closing bid-ask spread. The tendency to close inside the spread results in price change magnitudes much smaller than those predicted from binomial models. Moreover, although the change magnitude is biased by the underlying trend of the market, the distribution of next day price change relatives is largely unaffected. The result is a systematic regularity between the location of today's close and tomorrow's close relative to the bid-ask spread.