Empirical Research On The Bid-ask Spread Of Shenzhen Stock Market

The market microstructure is a finance domain which research on issues like price formation and price discovery, market structure and design, information disclosure. As a key index to measure the trade cost of stocks, the bid-ask spread has always been a focus of the research on finance market microstructure home and abroad for a long time. In this paper we try to explore the microstructure characteristics of Shenzhen stock exchange from the view of the bid-ask spread. The research samples are 40 stocks which were selected from Shenzhen component index and the research period is from Jan.4th, 2005 to Dec.30th, 2005. With high frequency trading data, we use the statistics and econometrics methods to study intraday and intraweek patterns of bid-ask spread and influencing factors of bid-ask spread. The aims are to let investors understand the relevant information about price formation and discovery mechanisms of Chinese stock market, then disclose the modes and characteristics of market microstructure of Chinese stock market.The empirical results show: (1)Bid-ask spread of Shenzhen stock market exhibits U-shaped intraday pattern, and quoted depth exhibits M-shaped intraday pattern. (2)From the analysis result of relatively effective spreads (RES) regression model, we find the influence of risk, trading volume and price on RES is the largest, the influence of trading day follows which orders by Monday, Thursday and Tuesday, and the effect is negative; From the angle of trading session, the influence of one-hour trading session after opening market, i.e. 10:30-11:30 AM is the third degree and the effect is negative.