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

See all articles by David P. Echevarria

David P. Echevarria

Saint Joseph's University - Department of Finance

Ben S. Branch

University of Massachusetts Amherst - Isenberg School of Management

Abstract

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

Echevarria, David P. and Branch, Ben S., 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, Available at SSRN: https://ssrn.com/abstract=74210

David P. Echevarria

Saint Joseph's University - Department of Finance

Philadelphia, PA 19131
United States
610-660-1648 (Phone)
610-660-8792 (Fax)

Ben S. Branch (Contact Author)

University of Massachusetts Amherst - Isenberg School of Management ( email )

Room 201A
Amherst, MA 01003-4910
United States
413-545-5690 (Phone)
413-545-3858 (Fax)

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