High-frequency data analysis

Seminar paper from the year 2003 in the subject Mathematics - Statistics, grade: 2.0 (B), European University Viadrina Frankfurt (Oder), language: English, abstract: Today the financial market becomes more complex and includes more competition. Reasons are trends like globalization, liberalization and lower-cost tradingmechanism. The market microstructure research has the aim of an efficient market. Itis focused on the structure of the financial market. The investigation becomespossible through the availability of high- frequency data. Those data exist especiallyin the United States and like that most of the research focuses this market. To explainthe phenomena, which have been found adequate, models that fit the characteristicsof high- frequency data have to be developed. The research is important to understand actions on the market as well as develop newefficient mechanism. One part of the market microstructure field is the bid-askspread. It will be focus of this paper. In the first two parts it will be discussedtheoretically. In the last part one model will be empirically analyzed and tested on itsusefulness and validity. The second part of this paper explains the basic elements surrounding the research ofbid-ask spread. Those are the financial market, market microstructure as well ashigh-frequency data. In the following part the bid-ask spread itself, approaches,researches and models focussing the spread will be discussed. The model of Roll(1984) will be explained in detail. The last part will be the empirical analysis of themodel of Roll. It is analyzed with data from the NASDAQ.