Negative Bid-ask spread in an OTC market
I have a question about bid-ask spread in an over-the-counter market.
I have these data:
i Spread Midpoint Imbalance Ask Bid Total Ask Total bid
7 -1.378094 -0.310953 1.000000 -1.000000 0.378094 0 1
10 -0.482757 1.254740 0.000000 1.013361 1.496118 1 1
11 -1.618707 -0.190646 1.000000 -1.000000 0.618707 0 1
11 -1.618707 -0.190646 1.000000 -1.000000 0.618707 0 1
10 0.635267 0.695728 0.000000 1.013361 0.378094 1 1
8 -2.308588 0.154294 1.000000 -1.000000 1.308588 0 1
5 -2.308588 0.154294 1.000000 -1.000000 1.308588 0 1
where i is the i-th agent that trades. I am considering both limit and market orders. When a market order occurs, ask/bid is equal to -1.
However, I don't know if the spread is correct and what means a negative spread.
Could you please help me to understand?
Thank you.
(1)1 Comments
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It's tough to know for sure without knowing what OTC market these quotes are over. First off, the calculation of spread is a little funny as by the usual standard of bid-ask spread the calculations for spread are wrong (for i=7,11,8,5) as when you divide a negative number by a negative number it should be positive.
However, what is more odd, and gives us a clue about what is going on here, is that the ask price is negative. Usually a seller is not actual willing to pay you money to get rid of a... whatever this is. My guess is the -1 is a placeholder for when the OTC market maker is unwilling to make an ask price. Especially since this they all happen to be exactly -1. The spread calculation doesn't really make sense in the case where there is no ask.
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