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Quantitative Finance · Begrippenlijst

Wat is Spread decomposition?

Definition 5.4 Microstructure and Execution · Hoofdstuk 5 — Decomposing the Spread

A spread decomposition splits the effective spread into an adverse-selection component and the rest, the order-processing and inventory-holding costs of chapter 4, which the provider keeps once the price has settled. Methods differ in what they observe (trades only, trades and quotes, daily bars) and in the model that lets them tell the parts apart.

Price impact and realised half-spread by horizon on the simulated day (share-weighted, with standard errors from 10-minute blocks); the effective half-spread is 0.535 ticks. The impact reaches the true adverse part at about one minute; beyond, the efficient price’s own moves make it noisy. Data: mx_decomp.by_horizon.
Figure 5.2. Price impact and realised half-spread by horizon on the simulated day (share-weighted, with standard errors from 10-minute blocks); the effective half-spread is 0.535 ticks. The impact reaches the true adverse part at about one minute; beyond, the efficient price’s own moves make it noisy. Data: mx_decomp.by_horizon.
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