An analysis of the NYSE listed stocks bid-ask spreads with implications for the turn-of-the-year and day-of-the-week anomalies in common stock returns
Abstract
This study examines the seasonality of the NYSE bid-ask spread for a sample of 579 firms based on end-of-month close bid-ask spreads recorded between January 1982 and January 1987, inclusive. Test results indicate that the bid-ask spreads of the large and small relative spread deciles are seasonal. The bid-ask spreads of the small relative spread decile increase from December to January, whereas the bid-ask spreads of the large relative spread deciles decrease from December to January. The changes in the bid-ask spread are significant at greater than the one percent level of significance. A daily sample of 74 firms is analyzed to focus on the changes in the bid-ask spread at the turn-of-the-year. The daily sample indicates that there is a significant difference in the bid-ask spread from December to January. The trading intervals at year end are evaluated and the changes in the bid-ask spread are significant for a trading period including at least the last nine trading days in December and the first nine trading days in January. The daily sample provides no evidence of a day-of-the-week effect in bid-ask spreads. The changes in the bid-ask spread have significant implications for the returns earned at the turn-of-the-year. The seasonal observation indicates that the January abnormal returns may not be an anomaly reflecting inefficient markets, but instead an efficient markets' reaction to changes in the market bid-ask spread.
Degree
Ph.D.
Advisors
McConnell, Purdue University.
Subject Area
Business community
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