Spread determinants and the day-of-the-week effect

• Spread determinants and day-of-the-week effects are examined on the NYSE.
• A panel cointegration model is applied.
• Both short-run and long-run determinants of spread are estimated.
• Certain groups of firms are characterised by day-of-the-week effects.
• Friday has the lowest speed of adjustment to equilibrium following a shock.

In this paper, we examine the determinants of the dollar bid–ask spread for each day of the week over the period 1998–2008. Using a panel cointegration approach, we estimate the determinants of the spread in both the short-run and long-run. Our main findings suggest that: (1) there are day-of-the-week effects for certain groups of firms; (2) the panel error correction model also reveals day-of-the-week effects, and the speed of adjustment to equilibrium following a shock is faster on Fridays; and (3) the effects of volume and volatility on the spread are mixed, with only some sectors experiencing the day-of-the-week effect.