The Bid-Ask Bias and the Size Effect: A Test of the Blume-Stambaugh Bid-Ask Bias Effect Hypothesis
Quarterly Review of Economics and Finance, Volume 38 #1, Spring 1998
Posted: 7 Apr 1998
Much CAPM-related research has explored the causes of the size effect anomaly. Blume and Stambaugh (1983) suggest that a ibid-ask biasi accounts for approximately one half of the size effect. The bid-ask bias results from the tendency of stocks to bounce between the bid and the ask price quotes. This bounce causes a difference between observed returns and a more realistic assessment of equilibrium market returns. Examination of a significantly larger data set suggests that the difference is caused by comparing value-weighted outcomes with equal-weighted outcomes.
JEL Classification: G12
Suggested Citation: Suggested Citation