Autori: Fernandes, Marcelo , Amaro de Matos, Joao
Titolo: Market microstructure models and the Markov property.
Periodico: European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 2000 - Fascicolo: 19 - Pagina iniziale: 1 - Pagina finale: 25

This paper develops a framework to test alternative market microstructure models of the bid-ask spread. If, on the one hand, information-based models result in bid and ask quotes that are non-Markovian, on the other hand, the Markov property may hold in equilibrium settings where the market maker serves as an intermediary. We thus derive a simple nonparametric test for Markovian dynamics, suitable to high frequency data, so as to address the merits of information-based and equilibrium models. Finally, we examine whether or not bid-ask spreads follow Markov processes using data from the New York Stock Exchange.


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