Modeling the bid/ask spread: measuring the inventory-holding premium

Bollen, Nicolas; Smith, Tom; Whaley, Robert

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Modeling the bid/ask spread: measuring the inventory-holding premium

Date

2004

Authors

Bollen, Nicolas

Smith, Tom

Whaley, Robert

Publisher

Elsevier

Abstract

The need to understand and measure the determinants of market maker bid/ask spreads is crucial in evaluating the merits of competing market structures and the fairness of market maker rents. This study develops a simple, parsimonious model for the market