The Asymmetry of Market Information: Chilean Environment, Intraday Spread and Factors Affecting It.

Abstract

The correct allocation of resources contributes to greater efficiency in the market and reduces information asymme- try. This benefits investors, businesses and society. The bid-ask-spread is an indicator of efficiency in the investment process, but that is a proxy of information asymmetry among investors. Because of the peculiarities of the Chilean capital market it is interesting to investigate the intraday spread. The following study addresses this and some of the factors affecting it: the quantity offered, the broker involved in the offer, the quality of governance of companies issuing shares and the corporate information provided. It also examines whether there are significant variations spread over time, especially since the existence of the financial crisis during 2007 and 2008. The sample includes the stock offers of a group of Chilean companies, which represent 38% of the total market capitalization of the IPSA. We have concentrated our efforts to recognize those factors that may influence the spread. We have also evaluated changes in average spread and its variability over time. Evidence shows that in the Chilean market, broker selection can be sig- nificant for a greater or lesser spread and that the amount offered in stock trading influences the spread. There is also evidence that both the spread and variability has been declining since 2008.