Graduation Year

Fall 2011

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts



Reader 1

Eric Hughson

Reader 2

Gregory Hess

Rights Information

© 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.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.