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Marcelo Brutti Righi, Kelmara Mendes Vieira, Daniel Arruda Coronel, Reisoli Bender Filho and Paulo Sergio Ceretta
''Decomposing the bid-ask spread in the Brazilian market: an intraday framework''
( 2014, Vol. 34 No.3 )
In this paper, we identify the bid-ask spread components in the Brazilian market at intraday high frequency. To do so, we use data from all stocks that compose the Ibovespa in 10-minute frequencies from January to March of 2013. We use the model of Huang and Stoll (1997). Preliminary results indicate that there is a relatively stable pattern in the temporal evolution of the means of the bid-ask spread percentage with a distinct seasonal effect linked to the opening and closing of the Brazilian market. Regarding the proportion of components, adverse selection costs exhibit the lowest participation in the bid-ask spread of stocks in the Brazilian market (approximately 3%); inventory holding costs have the largest participation (approximately 52%), followed by the order processing costs component (45%). The presented results highlight the importance of liquidity over information asymmetry as the observed pattern diverges from those obtained in previous studies conducted in developed markets.
Manuscript Received : Jan 17 2014 Manuscript Accepted : Sep 16 2014

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