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The average price of stock A during a recent period is $30 and the (7 marks) corresponding number for stock B is $10. Suppose the
The average price of stock A during a recent period is $30 and the (7 marks) corresponding number for stock B is $10. Suppose the auto-covariance of successive transaction price changes of stock A is -0.120 and the corresponding number for stock B is -0.010. Derive and use Rolls model to estimate the bid-ask spread (as % of the average stock price) for the two stocks.
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