Does execution time have an impact on the halfspread

1
Does execution time have an impact on the
half-spread

• Ram Regunathan
• Rutgers University

2
Overview

• In my short paper I looked at execution data over
  the last 5 years, and analyzed its impact on the
  half spread.
• I found a positive relationship between the
  half-spread and the execution times.
• In this paper I hope to show the effect of
  execution times on the half-spread is independent
  of the duration time on the half-spread.

3
Methodology

• I follow a two step process in this model. The
  first step is to estimate autoregressive
  conditional durational (ACD) model. On a monthly
  basis for a stock. I picked TDK Corporation.
• It is an ADR not traded very frequently in the
  market. I picked this stock primarily because I
  wanted a stock which does not have a very high
  trade volume, this was because in a stock like
  IBM the difference between transaction times is
  very low.

4
ACD models

• The conditional duration model proposed by Engle
  and Russell (1998), uses the idea of GARCH
  models to study the dynamic structure of adjusted
  durations.
• Model
• the density is assumed to be exponential. The
  estimates are therefore interpreted as QMLE
  estimates as they are consistent regardless of
  the true density. These are estimated using GARCH
  software with the dependent variable as square
  root of x and no intercept.

5
Some results

• A sample result for the ACD model for the month
  of August 2004, for TDK Stock.