The bid-ask spread for equity securities tends to be _______ for more frequently traded stocks and _______ for stocks which have more traders with inside information.

Question

Quizplus · Accepted Answer

The bid-ask spread is typically narrower (less) for more frequently traded stocks due to higher liquidity. However, it tends to be wider (more) for stocks with more traders having inside information, as market makers increase the spread to compensate for the higher risk of adverse selection.

The Bid-Ask Spread for Equity Securities Tends to Be _______