Bid-ask spread, along with profit, also encompass the impact of asymmetric information cost and order processing cost. Asymmetric information influences stock prices with varying degree of investors’ perception. Estimation of asymmetric information cost and its determinants have been explored significantly under low-frequency trading. The literature hardly attempts to study asymmetric information cost under high-frequency trading (HFT). Asymmetric information cost significantly influences bid-ask spread, and hence the nature of its impact under different market conditions needs to be analyzed under HFT. The study attempts to estimate asymmetric information cost in HFT and analyze its determinants under different industry sectors and market conditions. The study followed Affleck-Graves et al. (1994 , The Journal of Finance, 49(4), 1471–1488) model to estimate the asymmetric information cost using 5 minutes interval data for a period of 82 trading days. Information gets reflected in equity through the movement in price, variation in trading volume, and return volatility. The study has found share price, traded volume, return volatility and trading frequency as the major determinants of asymmetric information cost in different market conditions. The findings of the study have significant implications for market microstructure for trading, lowering information asymmetry in market and enhancing market quality.
Multivariate Fractional Integration Tests allowing for Conditional Heteroskedasticity with an Application to Return Volatility and Trading Volume
