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Bid-ask spread and liquidity premium in Brazil
Código: WPE – 060
Andrea Maria Accioly F. Minardi
Antônio Zoratto Sanvicente
There is evidence in American markets that spreads reflect illiquidity and information asymmetry costs. This paper investigates the nature of bid -ask spreads at the BOVESPA, Brazil, where brokers trade directly. We compare these results with other markets in which there are market specialists, and find the same relationship between spreads, stock prices and liquidity measures. We use bid ask spread as a proxy for liquidity and we find evidence of liquidity premium in the Brazilian stock market.