Bids and Asks in Disequilibrium Market Microstructure: The Case of Ibm

Posted: 20 Jul 1998

See all articles by Frederick H. deB. Harris

Frederick H. deB. Harris

Wake Forest University; Capital Markets CRC Limited (CMCRC)

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics

Ranjan R. Chakravarty

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: August 1994

Abstract

Microstructure research has recently forged two theoretical frameworks characterizing stock specialist behavior: a Walrasian inventory-theoretic individual optimization model sometimes with asymmetric information, and a queue-theoretic disequilibrium market model of the continuous auction process. To test the Brock and Kleidon (1992) continuous auction process, two simultaneous autoregressive equations for ask prices and for bid prices are estimated using transactions data for IBM for calendar year 1988. The results support Brock and Kleidon's distinguishing implications--namely, increased trading volume raises the ask and lowers the bid, and a Hausman-type specification test fails to reject the exogeneity of order flows at the bid and the ask. Also, greater price volatility within a fifteen minute interval leads to both lower bids and lower asks as buyers are accorded a risk premium, consistent with Brown, Harlow and Tinic's (1988) uncertain information hypothesis for efficient markets.

JEL Classification: G12

Suggested Citation

Harris, Frederick (Rick) H. deB. and McInish, Thomas H. and Chakravarty, Ranjan R., Bids and Asks in Disequilibrium Market Microstructure: The Case of Ibm (August 1994). Available at SSRN: https://ssrn.com/abstract=5543

Frederick (Rick) H. deB. Harris (Contact Author)

Wake Forest University ( email )

2601 Wake Forest Road
Babcock Graduate School of Management
Winston-Salem, NC 27109
United States
336-758-5112 (Phone)

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-4662 (Phone)
901-678-3006 (Fax)

Ranjan R. Chakravarty

affiliation not provided to SSRN

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