Dynamic completeness and market frictions

We propose a characterization of dynamic completeness in the presence of market frictions taking the form of bid{ask spreads. We show that bid-ask spreads do not necessarily result in dynamically incomplete markets. In fact, in some cases, if there was no bid-ask spread then markets would be dynamically incomplete. Potential applications of the results of this article concern the regulation of securities pricing, in particular the size of acceptable bid-ask spreads.