Overestimated effective spreads

Accurate liquidity measurement is important for liquidity timing and order routing. One of the most prevalent measures is the effective spread, defined as the percentage difference between the transaction price and the bid-ask spread midpoint. In a paper recently accepted for publication in Journal of Financial Economics, I challenge the use of the spread midpoint to gauge the fundamental value when measuring the effective spread. I show that the use of the midpoint leads to an overestimation of the “true” effective spread.

Stäng inte börsen

Jag skriver på DI Debatt (20 mars) att förslag om blankningsförbud och börsstängning som kommer nu i Covid19-krisen bör avvisas. Här lite extramaterial, som inte fick plats i tidningen. Bakgrund Blankningsförbud har den senaste veckan införts i Sydkorea, Spanien, Frankrike, Italien och Belgien (Bloomberg, FT) Jag har inte sett att någon börs stängt helt, men NYSE… Continue reading Stäng inte börsen

De la Vega Prize

I have been awarded the De la Vega Prize 2017 for my paper Overestimated effective spreads: Implications for investors. The picture is from the FESE Convention in Paris in June 2017. [FESE press release] [blog about the paper] [the paper on SSRN]

Celebrating Campbell-Lo-MacKinlay

On May 4-5, together with Albert Menkveld I organized the Conference on the Econometrics of Financial Markets at Stockholm Business School. The conference celebrated the 20th anniversary of an influential book on financial econometrics, published in 1997 by John Campbell, Andrew Lo, and Craig MacKinlay. The conference featured keynote speeches by John Campbell and Andrew Lo,… Continue reading Celebrating Campbell-Lo-MacKinlay

A network map of information percolation

When the trading of a security is fragmented across exchanges, MTFs, and dark pools, the prices at different markets co-move almost instantaneously. Almost. What happens in the time span specified as almost instantaneous? Once new information appears at one market, how does it spread to the other markets trading the same security? Information percolation describes how information spreads… Continue reading A network map of information percolation