Bid-Ask Spread Patterns and the Optimal Timing for Discretionary Liquidity Traders on Xetra

Abstract

This paper explores the statistical and economical significance of intraday and -week patterns in bid-ask spreads. We investigate a large panel of high frequency data for stocks traded on the XETRA trading platform and observe significant patterns in spreads. In addition to showing the robustness of our findings over time, as well as in cross-section, we are also able to demonstrate the patterns’ predictability in an out-of-sample approach. Our findings have clear implications, especially for uninformed but discretionary liquidity traders, which allow significant and economically relevant reductions of transaction costs.

Sebastian Stöckl

Assistant Professor in Financial Economics (tenure-track)

My research interests include Financial and Economic Uncertainty as well as Empirical Asset Pricing.