The Journal of Finance

Inferring the Components of the Bid‐Ask Spread: Theory and Empirical Tests

Published: 3/1989,  Volume: 44,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1989.tb02407.x  |  Cited by: 446

HANS R. STOLL

The relation between the square of the quoted bid‐ask spread and two serial covariances—the serial covariance of transaction returns and the serial covariance of quoted returns—is modeled as a function of the probability of a price reversal, π, and the magnitude of a price change, ∂, where ∂ is stated as a fraction of the quoted spread. Different models of the spread are contrasted in terms of the parameters, π and ∂. Using data on the transaction prices and price quotations for NASDAQ/NMS stocks, π and ∂ are estimated and the relative importance of the components of the quoted spread—adverse information costs, order processing costs, and inventory holding costs—is determined.

REPLY

Published: 3/1973,  Volume: 28,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1973.tb01358.x  |  Cited by: 0

Hans R. Stoll

THE PRICING OF SECURITY DEALER SERVICES: AN EMPIRICAL STUDY OF NASDAQ STOCKS

Published: 9/1978,  Volume: 33,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1978.tb02054.x  |  Cited by: 465

Hans R. Stoll

THE SUPPLY OF DEALER SERVICES IN SECURITIES MARKETS

Published: 9/1978,  Volume: 33,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1978.tb02053.x  |  Cited by: 1053

Hans R. Stoll

Presidential Address: Friction

Published: 8/2000,  Volume: 55,  Issue: 4  |  DOI: 10.1111/0022-1082.00259  |  Cited by: 660

Hans R. Stoll

The sources of trading friction are studied, and simple, robust empirical measures of friction are provided. Seven distinct measures of trading friction are computed from transactions data for 1,706 NYSE/AMSE stocks and 2,184 Nasdaq stocks. The measures provide insights into the magnitude of trading costs, the importance of informational versus real frictions, and the role of market structure. The degree to which the various measures are associated with each other and with trading characteristics of stocks is examined.

THE RELATIONSHIP BETWEEN PUT AND CALL OPTION PRICES

Published: 12/1969,  Volume: 24,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1969.tb01694.x  |  Cited by: 191

Hans R. Stoll

PRICE IMPACTS OF BLOCK TRADING ON THE NEW YORK STOCK EXCHANGE

Published: 6/1972,  Volume: 27,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1972.tb00985.x  |  Cited by: 495

Alan Kraus, Hans R. Stoll

On Dealer Markets Under Competition

Published: 5/1980,  Volume: 35,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1980.tb02153.x  |  Cited by: 100

THOMAS HO, HANS R. STOLL

Spot and Futures Prices and the Law of One Price

Published: 12/1983,  Volume: 38,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1983.tb03833.x  |  Cited by: 46

ARIS PROTOPAPADAKIS, HANS R. STOLL

The law of one price (LOP) is tested for narrowly defined commodities traded in futures markets in different countries during the period 1973–80. Although the LOP holds as an average tendency for most of the commodities, there are instances of large riskless arbitrage returns (before transactions costs). Deviations from the LOP tend to be commodity specific rather than due to a common external factor and they tend to be smaller the longer the maturity of the futures contract.

The Dynamics of Dealer Markets Under Competition

Published: 9/1983,  Volume: 38,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1983.tb02282.x  |  Cited by: 567

THOMAS S. Y. HO, HANS R. STOLL

The behavior of competing dealers in securities markets is analyzed. Securities are characterized by stochastic returns and stochastic transactions. Reservation bid and ask prices of dealers are derived under alternative assumptions about the degree to which transactions are correlated across stocks at a given time and over time in a given stock. The conditions for interdealer trading are specified, and the equilibrium distribution of dealer inventories and the equilibrium market spread are derived. Implications for the structure of securities markets are examined.

Distance, Lending Relationships, and Competition

Published: 2/2005,  Volume: 60,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2005.00729.x  |  Cited by: 1160

HANS DEGRYSE, STEVEN ONGENA

We study the effect on loan conditions of geographical distance between firms, the lending bank, and all other banks in the vicinity. For our study, we employ detailed contract information from more than 15,000 bank loans to small firms comprising the entire loan portfolio of a large Belgian bank. We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending. Loan rates decrease with the distance between the firm and the lending bank and increase with the distance between the firm and competing banks. Transportation costs cause the spatial price discrimination we observe.

How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice?

Published: 3/12/2015,  Volume: 70,  Issue: 2  |  DOI: 10.1111/jofi.12231  |  Cited by: 508

HANS‐MARTIN VON GAUDECKER

Household investment mistakes are an important concern for researchers and policymakers alike. Portfolio underdiversification ranks among those mistakes that are potentially most costly. However, its roots and empirical importance are poorly understood. I estimate quantitatively meaningful diversification statistics and investigate their relationship with key variables. Nearly all households that score high on financial literacy or rely on professionals or private contacts for advice achieve reasonable investment outcomes. Compared to these groups, households with below‐median financial literacy that trust their own decision‐making capabilities lose an expected 50 bps on average. All group differences stem from the top of the loss distribution.

Do Individual Investors Have Asymmetric Information Based on Work Experience?

Published: 5/23/2011,  Volume: 66,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2011.01658.x  |  Cited by: 129

TROND M. DØSKELAND, HANS K. HVIDE

Using a novel data set covering all individual investors' stock market transactions in Norway over 10 years, we analyze whether individual investors have a preference for professionally close stocks, and whether they make excess returns on such investments. After excluding own‐company stock holdings, investors hold 11% of their portfolio in stocks within their two‐digit industry of employment. Given the poor hedging properties of such investments, one would expect abnormally high returns. In contrast, all estimates of abnormal returns are negative, in many cases statistically significant. Overconfidence seems the most likely explanation for the excessive trading in professionally close stocks.

Financial Crises and Political Radicalization: How Failing Banks Paved Hitler's Path to Power

Published: 7/8/2022,  Volume: 77,  Issue: 6  |  DOI: 10.1111/jofi.13166  |  Cited by: 37

SEBASTIAN DOERR, STEFAN GISSLER, JOSÉ‐LUIS PEYDRÓ, HANS‐JOACHIM VOTH

Do financial crises radicalize voters? We study Germany's 1931 banking crisis, collecting new data on bank branches and firm‐bank connections. Exploiting cross‐sectional variation in precrisis exposure to the bank at the center of the crisis, we show that Nazi votes surged in locations more affected by its failure. Radicalization in response to the shock was exacerbated in cities with a history of anti‐Semitism. After the Nazis seized power, both pogroms and deportations were more frequent in places affected by the banking crisis. Our results suggest an important synergy between financial distress and cultural predispositions, with far‐reaching consequences.

Broadband Internet and the Stock Market Investments of Individual Investors

Published: 4/17/2024,  Volume: 79,  Issue: 3  |  DOI: 10.1111/jofi.13335  |  Cited by: 41

HANS K. HVIDE, TOM G. MELING, MAGNE MOGSTAD, OLA L. VESTAD

We study the effects of broadband internet use on the investment decisions of individual investors. A public program in Norway provides plausibly exogenous variation in internet use. Our instrumental variables estimates show that internet use causes a substantial increase in stock market participation, driven primarily by increased fund ownership. Existing investors tilt their portfolios toward funds, thereby obtaining more diversified portfolios and higher Sharpe ratios, and do not increase their trading activity in stocks. Overall, access to high‐speed internet spurs a “democratization of finance,” with individuals making investment decisions that are more in line with the advice from portfolio theory.

Nonstandard Errors

Published: 4/17/2024,  Volume: 79,  Issue: 3  |  DOI: 10.1111/jofi.13337  |  Cited by: 106

ALBERT J. MENKVELD, ANNA DREBER, FELIX HOLZMEISTER, JUERGEN HUBER, MAGNUS JOHANNESSON, MICHAEL KIRCHLER, SEBASTIAN NEUSÜß, MICHAEL RAZEN, UTZ WEITZEL, DAVID ABAD‐DÍAZ, MENACHEM (MENI) ABUDY, TOBIAS ADRIAN, YACINE AIT‐SAHALIA, OLIVIER AKMANSOY, JAMIE T. ALCOCK, VITALI ALEXEEV, ARASH ALOOSH, LIVIA AMATO, DIEGO AMAYA, JAMES J. ANGEL, ALEJANDRO T. AVETIKIAN, AMADEUS BACH, EDWIN BAIDOO, GAETAN BAKALLI, LI BAO, ANDREA BARBON, OKSANA BASHCHENKO, PARAMPREET C. BINDRA, GEIR H. BJØNNES, JEFFREY R. BLACK, BERNARD S. BLACK, DIMITAR BOGOEV, SANTIAGO BOHORQUEZ CORREA, OLEG BONDARENKO, CHARLES S. BOS, CIRIL BOSCH‐ROSA, ELIE BOURI, CHRISTIAN BROWNLEES, ANNA CALAMIA, VIET NGA CAO, GUNTHER CAPELLE‐BLANCARD, LAURA M. CAPERA ROMERO, MASSIMILIANO CAPORIN, ALLEN CARRION, TOLGA CASKURLU, BIDISHA CHAKRABARTY, JIAN CHEN, MIKHAIL CHERNOV, WILLIAM CHEUNG, LUDWIG B. CHINCARINI, TARUN CHORDIA, SHEUNG‐CHI CHOW, BENJAMIN CLAPHAM, JEAN‐EDOUARD COLLIARD, CAROLE COMERTON‐FORDE, EDWARD CURRAN, THONG DAO, WALE DARE, RYAN J. DAVIES, RICCARDO DE BLASIS, GIANLUCA F. DE NARD, FANY DECLERCK, OLEG DEEV, HANS DEGRYSE, SOLOMON Y. DEKU, CHRISTOPHE DESAGRE, MATHIJS A. VAN DIJK, CHUKWUMA DIM, THOMAS DIMPFL, YUN JIANG DONG, PHILIP A. DRUMMOND, TOM DUDDA, TEODOR DUEVSKI, ARIADNA DUMITRESCU, TEODOR DYAKOV, ANNE HAUBO DYHRBERG, MICHAŁ DZIELIŃSKI, ASLI EKSI, IZIDIN EL KALAK, SASKIA TER ELLEN, NICOLAS EUGSTER, MARTIN D. D. EVANS, MICHAEL FARRELL, ESTER FELEZ‐VINAS, GERARDO FERRARA, EL MEHDI FERROUHI, ANDREA FLORI, JONATHAN T. FLUHARTY‐JAIDEE, SEAN D. V. FOLEY, KINGSLEY Y. L. FONG, THIERRY FOUCAULT, TATIANA FRANUS, FRANCESCO FRANZONI, BART FRIJNS, MICHAEL FRÖMMEL, SERVANNA M. FU, SASCHA C. FÜLLBRUNN, BAOQING GAN, GE GAO, THOMAS P. GEHRIG, ROLAND GEMAYEL, DIRK GERRITSEN, JAVIER GIL‐BAZO, DUDLEY GILDER, LAWRENCE R. GLOSTEN, THOMAS GOMEZ, ARSENY GORBENKO, JOACHIM GRAMMIG, VINCENT GRÉGOIRE, UFUK GÜÇBILMEZ, BJÖRN HAGSTRÖMER, JULIEN HAMBUCKERS, ERIK HAPNES, JEFFREY H. HARRIS, LAWRENCE HARRIS, SIMON HARTMANN, JEAN‐BAPTISTE HASSE, NIKOLAUS HAUTSCH, XUE‐ZHONG (TONY) HE, DAVIDSON HEATH, SIMON HEDIGER, TERRENCE HENDERSHOTT, ANN MARIE HIBBERT, ERIK HJALMARSSON, SETH A. HOELSCHER, PETER HOFFMANN, CRAIG W. HOLDEN, ALEX R. HORENSTEIN, WENQIAN HUANG, DA HUANG, CHRISTOPHE HURLIN, KONRAD ILCZUK, ALEXEY IVASHCHENKO, SUBRAMANIAN R. IYER, HOSSEIN JAHANSHAHLOO, NAJI JALKH, CHARLES M. JONES, SIMON JURKATIS, PETRI JYLHÄ, ANDREAS T. KAECK, GABRIEL KAISER, ARZÉ KARAM, EGLE KARMAZIENE, BERNHARD KASSNER, MARKKU KAUSTIA, EKATERINA KAZAK, FEARGHAL KEARNEY, VINCENT VAN KERVEL, SAAD A. KHAN, MARTA K. KHOMYN, TONY KLEIN, OLGA KLEIN, ALEXANDER KLOS, MICHAEL KOETTER, ALEKSEY KOLOKOLOV, ROBERT A. KORAJCZYK, ROMAN KOZHAN, JAN P. KRAHNEN, PAUL KUHLE, AMY KWAN, QUENTIN LAJAUNIE, F. Y. ERIC C. LAM, MARIE LAMBERT, HUGUES LANGLOIS, JENS LAUSEN, TOBIAS LAUTER, MARKUS LEIPPOLD, VLADIMIR LEVIN, YIJIE LI, HUI LI, CHEE YOONG LIEW, THOMAS LINDNER, OLIVER LINTON, JIACHENG LIU, ANQI LIU, GUILLERMO LLORENTE, MATTHIJS LOF, ARIEL LOHR, FRANCIS LONGSTAFF, ALEJANDRO LOPEZ‐LIRA, SHAWN MANKAD, NICOLA MANO, ALEXIS MARCHAL, CHARLES MARTINEAU, FRANCESCO MAZZOLA, DEBRAH MELOSO, MICHAEL G. MI, ROXANA MIHET, VIJAY MOHAN, SOPHIE MOINAS, DAVID MOORE, LIANGYI MU, DMITRIY MURAVYEV, DERMOT MURPHY, GABOR NESZVEDA, CHRISTIAN NEUMEIER, ULF NIELSSON, MAHENDRARAJAH NIMALENDRAN, SVEN NOLTE, LARS L. NORDEN, PETER O'NEILL, KHALED OBAID, BERNT A. ØDEGAARD, PER ÖSTBERG, EMILIANO PAGNOTTA, MARCUS PAINTER, STEFAN PALAN, IMON J. PALIT, ANDREAS PARK, ROBERTO PASCUAL, PAOLO PASQUARIELLO, LUBOS PASTOR, VINAY PATEL, ANDREW J. PATTON, NEIL D. PEARSON, LORIANA PELIZZON, MICHELE PELLI, MATTHIAS PELSTER, CHRISTOPHE PÉRIGNON, CAMERON PFIFFER, RICHARD PHILIP, TOMÁŠ PLÍHAL, PUNEET PRAKASH, OLIVER‐ALEXANDER PRESS, TINA PRODROMOU, MARCEL PROKOPCZUK, TALIS PUTNINS, YA QIAN, GAURAV RAIZADA, DAVID RAKOWSKI, ANGELO RANALDO, LUCA REGIS, STEFAN REITZ, THOMAS RENAULT, REX W. RENJIE, ROBERTO RENO, STEVEN J. RIDDIOUGH, KALLE RINNE, PAUL RINTAMÄKI, RYAN RIORDAN, THOMAS RITTMANNSBERGER, IÑAKI RODRÍGUEZ LONGARELA, DOMINIK ROESCH, LAVINIA ROGNONE, BRIAN ROSEMAN, IOANID ROŞU, SAURABH ROY, NICOLAS RUDOLF, STEPHEN R. RUSH, KHALADDIN RZAYEV, ALEKSANDRA A. RZEŹNIK, ANTHONY SANFORD, HARIKUMAR SANKARAN, ASANI SARKAR, LUCIO SARNO, OLIVIER SCAILLET, STEFAN SCHARNOWSKI, KLAUS R. SCHENK‐HOPPÉ, ANDREA SCHERTLER, MICHAEL SCHNEIDER, FLORIAN SCHROEDER, NORMAN SCHÜRHOFF, PHILIPP SCHUSTER, MARCO A. SCHWARZ, MARK S. SEASHOLES, NORMAN J. SEEGER, OR SHACHAR, ANDRIY SHKILKO, JESSICA SHUI, MARIO SIKIC, GIORGIA SIMION, LEE A. SMALES, PAUL SÖDERLIND, ELVIRA SOJLI, KONSTANTIN SOKOLOV, JANTJE SÖNKSEN, LAIMA SPOKEVICIUTE, DENITSA STEFANOVA, MARTI G. SUBRAHMANYAM, BARNABAS SZASZI, OLEKSANDR TALAVERA, YUEHUA TANG, NICK TAYLOR, WING WAH THAM, ERIK THEISSEN, JULIAN THIMME, IAN TONKS, HAI TRAN, LUCA TRAPIN, ANDERS B. TROLLE, M. ANDREEA VADUVA, GIORGIO VALENTE, ROBERT A. VAN NESS, AURELIO VASQUEZ, THANOS VEROUSIS, PATRICK VERWIJMEREN, ANDERS VILHELMSSON, GRIGORY VILKOV, VLADIMIR VLADIMIROV, SEBASTIAN VOGEL, STEFAN VOIGT, WOLF WAGNER, THOMAS WALTHER, PATRICK WEISS, MICHEL VAN DER WEL, INGRID M. WERNER, P. JOAKIM WESTERHOLM, CHRISTIAN WESTHEIDE, HANS C. WIKA, EVERT WIPPLINGER, MICHAEL WOLF, CHRISTIAN C. P. WOLFF, LEONARD WOLK, WING‐KEUNG WONG, JAN WRAMPELMEYER, ZHEN‐XING WU, SHUO XIA, DACHENG XIU, KE XU, CAIHONG XU, PRADEEP K. YADAV, JOSÉ YAGÜE, CHENG YAN, ANTTI YANG, WOONGSUN YOO, WENJIA YU, YIHE YU, SHIHAO YU, BART Z. YUESHEN, DARYA YUFEROVA, MARCIN ZAMOJSKI, ABALFAZL ZAREEI, STEFAN M. ZEISBERGER, LU ZHANG, S. SARAH ZHANG, XIAOYU ZHANG, LU ZHAO, ZHUO ZHONG, Z. IVY ZHOU, CHEN ZHOU, XINGYU S. ZHU, MARIUS ZOICAN, REMCO ZWINKELS

In statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence‐generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer‐review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.