Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Althoughthedollarspreadisnotthatdifferentacrossmarket
capitalization classes, thesmallest companies also tend to
havelower-pricedstocks.Consequently,thespreadisashigh
as6.55percentofthepriceforsmall-capitalizationstocksand
as lowas 0.52percent of thepricefor large-capitalization
companies.Anotherstudy,byHuangandStoll(1987),found
that the stocks in the top 20 percent in terms of trading
volume had an average spread of only 0.62 percent as a
percentofthemarketpricewhilethestocksinthebottom 20
percent had a spread of 2.06 percent.
4 Therearealsolargedifferencesin bid-askspreadsacross
different exchanges in the United States. Lookingat only
NASDAQ stocks, Kothare and Laux (1995)
5 foundthattheaveragewasalmost 6 percentofthepricein
1992, and much higher for low-priced stocks on the
exchange.Someofthedifferencecanbeattributedtothefact
thatNASDAQstocksaregenerallymuchsmaller(intermsof
market capitalization) and riskierthan stockslisted on the
NYSE or the American Stock Exchange (AMEX).