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This paper examines the determinants of bid-ask spreads and their behaviour around corporate earning announcement dates, for a sample of UK firms over the period 1986-94. The paper finds that closing daily spreads are affected by order processing costs (proxied by trading volumes), inventory control costs (trading volumes and return variability) and asymmetric information (unusually high trading volumes). Spreads start to narrow 15 days before an earnings announcement, and narrow further by thedoi:10.2139/ssrn.253047 fatcat:6rjd3gec45hnrpldpazrmdb424