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Beat the Midpoint: Heterogeneity in Bid-Ask Long-Run Equilibrium
14:00-15:30, Monday, July 6, 2020
Dr. Wenxin HUANG is now an Assistant Professor at Antai College of Economics & Management, Shanghai Jiao Tong University. She received her Ph.D. in Economics from Singapore Management University in 2018. Her research interests are Econometric Theory (Panel data) and Financial Econometrics. Her work has appeared in Econometric Theory.
We propose a new measure of efficient price when informed trading exists. Compared to the bid-ask midpoint proxy, our measure allows the bid and ask weights to vary across stocks and provides more information on the existence and direction of informed trading. By using the novel Classifier-LASSO method, we find that there are more than 30% of S&P 1500 stocks whose efficient prices significantly deviate from the bid-ask midpoint. Moreover, the deviation explored by the data-driven method is associated with economically meaningful events, such as information asymmetry risk and informed trading activities. This method has many potential applications to measure transaction costs, adverse-selection risk, and to test microstructure effects on asset price dynamics.
For more information of the seminar, scan the following QR code(s) to join Tencent QQ group (904 544 292) or WeChat group named "IAER Seminar", please.
WeChat Group (Valid until 7/5/2020)