Date of Award

Summer 7-25-2017

Degree Type

Report

Degree Name

Master of Science (MS)

Department

Economics and Finance

First Advisor

Tyler Brough

Abstract

Using a VECM to estimate the dynamics of liquidity, in this case bid-ask spread, I run simulations for stocks of varying market capitalizations and find that lower market cap stocks require more orders to return to equilibrium spread following a shock, suggesting less efficiency of price discovery in lower cap stocks. Despite the greater number of order necessary for lower cap stocks, the return to equilibrium spread is still very fast, suggesting a relatively efficient market for NYSE and NASDAQ stocks in the upper three market cap quartiles.

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