Quote Setting and Price Formation in an Order Driven Market Puneet Handa

  title={Quote Setting and Price Formation in an Order Driven Market Puneet Handa},
  author={Robert N. Schwartz and Ashish Tiwari and Robert Leroy Jensen},
This paper models quote setting and price formation in a non-intermediated, order driven market where trading occurs because investors differ in their share valuations and the advent of news that is not common knowledge, and tests the model using transaction data on individual stocks in the ParisBourse CAC40 index. As an extension of Foucault (1999), we show that the size of the spread is a function of the differences in valuation among investors and of adverse selection. Both GMM estimation of… CONTINUE READING
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