We show that time variation in expected returns and/or partial price adjustments lead to a downward bias in previous estimators of both the spread and its components. We introduce a new approach that provides unbiased and efficient estimators of the components of the spread. We find that between...

An important group of traders in the foreign exchange market is governments who often adhere to a foreign exchange rate policy of occasional interventions with otherwise floating rates. In this article we provide a theoretical model and empirical evidence that government foreign exchange...

We examine changes in trading activity around stock splits and their effect on volatility and the adverse-information component of the bid-ask spread. Even after controlling for microstructure biases, we find a significant increase in volatility after the split. Changes in total volatility and...

Prior work with competitive rational expectations equilibrium models indicates that there should be a positive relation between trading volume and differences in beliefs or information among traders. We show that this result is sensitive to whether and how transaction costs are modeled. In a...