Youcouldarguethatthesestudies aredatedand thatthere
havebeensignificantchangesin both theway marketsare
structuredandthewayspreadsaresetinfinancialmarkets.In
particular,afterstudiesfoundthatspreadsontheNASDAQ
might have been manipulated by specialists, there was
significantlegalpressurebroughtontheexchangetoalterthe
wayinwhichspreadswereset.ThiswasfollowedbytheNew
York Stock Exchange shifting from a long tradition of
quotingspreadsinsixteenthsandeighthstodecimals.Have
these changes made a dramatic difference? Spreads have
declinedonaverage,butthedrophasbeenmuchgreaterfor
smaller, less liquid stocks.
WhilethesestudieslookedattradedU.S.equities,thereare
bid-ask spreads in other markets aswell. While no single
comprehensive study of all these spreads exists, four
conclusions seem warranted:
1.ThespreadsinU.S.governmentsecuritiesaremuchlower
thanthespreadsontradedstocksintheUnitedStates.For
instance,thetypicalbid-askspreadonaTreasurybillisless
than 0.1 percent of the price.
2.Thespreadsoncorporatebondstendtobelargerthanthe
spreadsongovernmentbonds,with safer(higher-rated)and
moreliquidcorporatebondshavinglowerspreadsthanriskier
(lower-rated) and less liquid corporate bonds.
3.Thespreadsinnon-U.S.equitymarketsaregenerallymuch
higherthanthespreadsonU.S.equitymarkets,reflectingthe
lowerliquidityinnon-U.S. marketsandthesmallermarket
capitalization of the traded firms.