The Black–Scholes (BS; F. Black & M. Scholes, 1973) option pricing model, and modern parametric option pricing models in general, assume that a single unique price for the underlying instrument exists, and that it is the mid‐ (the average of the ask and the bid) price. In this article the...

In this paper we test for the inclusion of the bid-ask spread in the consumption CAPM, in the UK stock market over the time period of 1980-2000. This is undertaken by extending the VAR approach proposed by Campbell and Shiller (1988a) to incorporate the bid-ask spread. Overall the statistical...

In this paper we examine the stock price effect of changes in the composition of the FTSE 100 over the time period of 1984-2001. Like the S&P 500 listing studies, we find that the price and trading volume of newly listed firms increases. The evidence is consistent with the information...

The generally accepted factors that determine the bid-ask spread are volatility, trading volume and market value (<link rid="b2">Atkins and Dyl, 1997</link>; <link rid="b11">Glosten and Harris, 1988</link>; and <link rid="b22">Menyah and Paudyal, 2000</link>). Following <link rid="b19">Kim and Verrecchia (1994)</link> we include a measure of the disagreement in analysts' earnings...