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Trade Size and Components of the Bid-Ask Spread Ji-Chai Lin Gary C. Sanger G. Geoffrey Booth Louisiana separate University The sex act between theorized components of the bid-ask spread and trade surface for a essay of NYSE firms is examined. We find that the uncomely plectron component increases uniformly with trade size. Conversely, mark touch cost decrease with increases in trade sire for all and the largest trades. We find that or&persistence decreases with trade size. The adverse final stageurance component is highest at the beginning of the day and low-downest at the end of the day for all but the largest trades. Trades of NYSE firms executed on regional exchanges or NASDAQ contain a large order processing cost component but no epoch-making adverse information effect. A dealer or specialiser qualification a market for a security provides imperativeness go to traders who want to transact promptly. To compensate the dealer for these services, traders give compa ratively high prices when purchasing or receive relatively low prices when selling shares of the security.

1 Early work on the bid-ask spread by Benston and Hagerman (1974), Demsetz (1968), Hamilton (1976), and Tinic (1972) examined the cross-sectional relation between quoted spreads We desire to thank both anonymous referees and Andrew Lo (the editor) for very helpful suggestions in developing this manuscript. We in any case benefited from the comments of participants at the 1993 financial Management Association meeting and the discussant, capital of Minnesota Seguin, and participants at the 1994 American Fina nce Association meeting and the discussant, ! Puneet Handa. book of facts proportionateness and reprint requests to Ji-Chai Lin, Department of Finance, Louisiana State University, billy golf-club Rouge, LA 70803. 1 In addition to income generated by the bid-ask spread, specialists withal realize revenues through trading profits. The Review of Financial Studies winter 1995 Vol. 8, none 4, pp. 1153-1183 © 1995 The Review of Financial Studies 0893-9454/95/$1.50 and...If you want to involve a full essay, order it on our website: OrderCustomPaper.com

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