hard · Market Microstructure
For a stock with a quoted half-spread of 5 cents and a midpoint of 20.00, the Roll (1984) serial covariance of price changes is estimated as -0.0009 (in squared-dollar units). The Stoll decomposition estimates the adverse-selection component as 40% of the effective spread.
What is the Roll-implied effective half-spread, and what is the adverse-selection component in cents?
- Roll half-spread = 3 cents; adverse-selection = 1.2 cents
- Roll half-spread = 3 cents; adverse-selection = 2.0 cents
- Roll half-spread = 5 cents; adverse-selection = 2.0 cents
- Roll half-spread = 4.5 cents; adverse-selection = 1.8 cents
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