Impact of Bid-Ask Spread on Market Efficiency

In the context of equity market structure, understanding market microstructure is essential for assessing trade execution and price formation. Market microstructure focuses on the processes and mechanisms that facilitate trading and the impacts of these characteristics on asset prices.

Consider a situation where the bid-ask spread for a given stock is reduced significantly due to increased liquidity from high-frequency traders. This change is noticed by market participants, who may alter their trading strategies in response.

Based on the implications of this scenario, which of the following statements is most accurate regarding the relationship between market microstructure and price discovery?