Campus Only Senior Thesis
Bachelor of Arts
© 2011 Kevin Potterton
This paper provides a numerical method for demonstrating that bid-ask spreads increase with information asymmetry or the probability of insider trading. These spreads also decrease throughout the trading day. Average daily spreads are a non-monotone function of information asymmetry. This result brings into question empirical results showing that higher levels of inside information lead to higher expected returns.
Potterton, Kevin, "Bid-Ask Spreads in a Heterogeneously Informed Market" (2011). CMC Senior Theses. 274.
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