Structural change and the bid-ask spread: evidence from the Johannesburg Stock Exchange (JSE)

Abstract

This article quantifies the size of the implicit bid-ask spread and examines the impact of three structural changes on the relationship between the bid-ask spread and its determinants on the Johannesburg Stock Exchange (JSE). A sample of 135 firms was analyzed using a time series over the period from January 1991 to February 1996. It was found that the size of the spread is substantially larger on the JSE and that the independent variables (price, volatility and trading volume) explain a smaller proportion of variation in the spread than on developed exchanges. The evidence shows that the spread decreased after tax structural change, but increased after both political and economic structural changes. The size of the spread decreased on average from 1.71% to 1.24% following tax structural change and increased from 1.67% to 1.83% and from 1.10% to 1.24% following political and economic structural changes, respectively. The evidence also shows that the impact of tax, political and economic structural changes on the relationship between the spread and its determinants is not statistically significant. The results show that while the independent variables explain from 23.45 to 48.2% of the variation in the spread, there is no statistically significant change in the coefficients of the independent variables between before and after structural change regressions.