The first rule on the stock market is to buy low and sell high. Economists are well aware of how this behaviour changes the prices of stocks, but in reality, trades alone don’t tell the whole story. Parties like banks and insurance companies rarely trade stocks themselves; instead, they place orders for traders to do so on their behalf, which can be canceled at any time if they are no longer interested. The amount payed by those placing orders is affected by a highly variable quantity called the bid-ask ‘spread’—the difference between the price initially quoted for a stock, and the final bidding price. In a new study published in EPJ B, Stephan Grimm and Thomas Guhr from Duisburg-Essen University in Germany compare the influences that three price-changing events have on these spread changes. Their work sheds new light on the intricate inner workings of the stock market.
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Source: Phys.org