Question

In 300 words or less, discuss whether the significance and direction of the relationships between bid-ask spread and share price, market capitalisation, return volatility and turnover are consistent with prior evidence, using at least two academic journal articles to support your argument.

Answer 1

Answer )

Refernces for my asnwer :

Roy A. Batchelor, Amir H. Alizadeh* and Ilias D. Visvikis,"The relation between bid–ask spreads and price volatility in forward markets",Derivatives Use, Trading & Regulation, Vol. 11 No. 2, 2005, pp. 105–125.

Jack Sarkissian,"Spread, volatility, and volume relationship in financial markets and market maker’s profit optimization",

J. Sarkissian, “Quantum Theory of Securities Price Formation in Financial Markets”, arXiv:1605.04948v2 [q-fin.TR], (2016).

Concept explained below:

The actual association with Bid ask spread, volatility and volume of trade. The relation not only based to find the interplay between order liquidity and order impact. In last few years, there has been a observed a numbers of companies, logistic firms commodity trading companies and even financial organization trading in derivative market in all types of contract. When the volume of trade are less , liquidity have negative impact on share price. But the bid-ask spread is a micro level parameter and so dependency on volume of trade ,price volatility and sometime on trade horizon in derivative markets, to maximize market profit as whole.