<heading id="h1" level="1" implicit="yes" format="display">Abstract</heading>The empirical finance literature reveals that conditional models estimated with monthly data generally improve fund performance. Furthermore, it has been shown that using daily instead of monthly returns in an unconditional framework increases the proportion of abnormal performances...

In this paper we take a new approach to the study of the interrelation between stock and option markets by extending Stoll's (1989) model of cost components of the bid-ask spread to include an error component in prices. Building upon Stoll's estimates of the probability of price reversals, we...