Components of the bid-ask spread and the statistical properties of transaction prices
Article Abstract:
The bid-ask spread can be decomposed into two parts: one part due to asymmetric information and the other part due to other factors such as monopoly power. The part due to asymmetric information attenuates statistical biases in mean return, variance, and serial covariance. Thus, using spread data to adjust for biases in return moments requires knowing not only the spread but the composition of the spread. Furthermore, any spread-estimation procedure using transaction prices must estimate two spread components. On the other hand, the appropriateness of some previously suggested statistical corrections is independent of the spread composition. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1987
User Contributions:
Comment about this article or add new information about this topic:
Trade credit and informational asymmetry
Article Abstract:
Commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held. By offering trade credit, a seller can identify prospective defaults more quickly than if financial institutions were the sole providers of short-term financing. The information is valuable in cases where the seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1987
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: Credit granting: a comparative analysis of classification procedures. Loan commitment contracts, terms of lending, and credit allocation
- Abstracts: Personal computers attracting an ever-increasing share of professional tax return preparers. part 2 Enhanced scrutiny affects more return preparers and increases costs of violations
- Abstracts: An exploratory approach to measuring perceptions of strategic decision process constructs. The relationship of strategic planning to financial performance
- Abstracts: Seasonality in the risk-return relationship: some international evidence. part 2 Intradaily price - volume adjustments of NYSE stocks to unexpected earnings
- Abstracts: More powerful portfolio approaches to regressing abnormal returns on firm-specific variables for cross-sectional studies