Graduation Year
Fall 2011
Document Type
Campus Only Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Eric Hughson
Reader 2
Gregory Hess
Rights Information
© 2011 Kevin Potterton
Abstract
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.
Recommended Citation
Potterton, Kevin, "Bid-Ask Spreads in a Heterogeneously Informed Market" (2011). CMC Senior Theses. 274.
https://scholarship.claremont.edu/cmc_theses/274
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.