An Analysis of Intraday Patterns in Bid/Ask Spreads for NYSE Stocks

ABSTRACT The behavior of time‐weighted bid–ask spreads over the trading day are examined. The plot of minute‐by‐minute spreads versus time of day has a crude reverse J ‐shaped pattern. Schwartz identifies four determinants of spreads: activity, risk, information, and competition. Using a linear regression model, a significant relationship between these same factors and intraday spreads is demonstrated, but dummy variables for time of day have a reverse J ‐shape. For given values of the activity, risk, information and competition measures, spreads are higher at the beginning and end of the day relative to the interior period.