Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks

Ananth Madhavan; Matthew Richardson; Mark Roomans

doi:10.1093/rfs/10.4.1035

Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks

Ananth Madhavan^1,2,3; Matthew Richardson^4,5; Mark Roomans⁴

¹ University of Southern California · ² California Southern University · ³ BlackRock (United States) · ⁴ Morgan Stanley (United States) · ⁵ New York University

Review of Financial Studies 1997 open access

This article develops and tests a structural model of intraday price formation that embodies public information shocks and microstructure effects. We use the model to analyze intraday patterns in bid-ask spreads, price volatility, transaction costs, and return and quote auto-correlations, and to construct metrics for price discovery and effective trading costs. Information asymmetry and uncertainty over fundamentals decrease over the day, although transaction costs increase. The results help explain the U-shaped pattern in intraday bid-ask spreads and volatility, and are also consistent with the intra-day decline in the variance of ask price changes.

DOI: 10.1093/rfs/10.4.1035
Volume: 10 (4)
Pages: 1035-1064
Language: en
Export: BibTeX
Sources: crossref openalex