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Comment: Smidt Paper

Published online by Cambridge University Press:  06 April 2009

Thomas E. Copeland
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Extract

One of the interesting anomalies of asset trading in secondary markets is that it is not usually possible to observe actual market clearing prices. Rather, we can only observe transactions as bid and ask price? and infer that the market equilibrium price lies between them. Professor Smidt analyzes continuous transactions data for individual NYSE listed securities during 1977. From it he deduces (1) the behavior of transaction prices, (2) the average size of bid-ask spreads, and (3) the movement of market prices. Given that neither the bid-ask spread nor the actual equilibrium price is observable from the available data, this is an ambitious undertaking. The problem is further complicated by the fact that the transactions data contain three distinct types of trading activity: matching trades at the opening or reopening of the auction market, auction trades (the bulk of activity by number of transactions), and block trades (the second largest activity by dollar volume).

Type
IV. Empirical Studies Relating to the Structure of Securities Markets
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 4 , November 1979 , pp. 869 - 872
Copyright
Copyright © School of Business Administration, University of Washington 1979

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References

REFERENCES

[1]Copeland, Thomas E. “A Model of Asset Trading under the Assumption of Sequential Information Arrival.” The Journal of Finance(09 1976), pp. 1149–1168.CrossRefGoogle Scholar
[2]Dann, L.; Mayers, D.; and Raab, R.. “Trading Rules, Large Blocks and the Speed of Adjustment.” The Journal of Financial Economics(01 1977), pp. 3–22.CrossRefGoogle Scholar
[3]Kraus, A., and Stoll, H.. “Price Impacts of Block Trading on the New York Stock Exchange.” The Journal of Finance(06 1972), pp. 569–588.CrossRefGoogle Scholar