Bid–Ask Bounce
Market Microstructure glossary · Spread Economics & Liquidity Measurement
Definition
Apparent volatility induced by trades alternately printing at the bid and the ask without any change in fundamental value. The mechanism underlying Roll's Estimator.
Bid–Ask Bounce in plain English
Imagine a stock whose true value hasn't budged all afternoon, yet the last-traded price keeps flickering up a penny, down a penny, up a penny. That jitter isn't real news — it's just trades landing alternately on the buyer's price and the seller's price, which sit a hair apart. It's like a thermostat reading that wobbles between 71 and 72 while the room's temperature is dead steady; the flicker comes from the measuring gap, not from actual change. This artificial back-and-forth is called bid–ask bounce, and clever economists (via Roll's Estimator) actually work backwards from how much it bounces to guess how wide that buy–sell gap is.
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