We investigate the behavior of bid-ask spread components around U.S. Federal Funds Rate announcement times for a sample of Canadian firms that are cross-listed in the U.S. We use transaction-level data to decompose the spread into its three components, namely, information asymmetry, order persistence, and order processing costs. We observe that at times of news announcements, the information asymmetry component increases more in Canada than in the U.S., indicating that trades in Canada are more information-driven than trades in the U.S. We further find that the order persistence component increases more in the U.S. than in Canada, indicating that there is a temporary price pressure surrounding the news announcement period in the U.S.
- Macroeconomic News Announcements
- Bid-Ask Spreads
- Spread Decomposition