Bid-ask spreads 2nd the avoidance of odd-eighth quotes on Nasdaq: An examination of exchange listings
نویسنده
چکیده
This paper examines 472 securities that were listed on Nasdaq and moved to the NYSE or Amex. When Nasdaq market makers avoid odd-eighth quotes, bid-ask spreads are large and decline dramatically with exchange listing. When market makers use both odd and even eighths. spreads are smaller and decline only slightly with exchange listing The large spreads observed when Nasdaq market makers avoid odd-eighths cannot be explained by security-specific characteristics. Instead, the results support the conclusion that the avoidance of odd-eighth quotes is used as a coordination device among Nasdaq market makers to maintain supra-competitive bid-ask spreads.
منابع مشابه
Odd-eighth avoidance as a defense against SOES bandits1
We model the behavior of Nasdaq momentum traders, also known as SOES bandits. We show, all things being equal, that the profitability of SOES bandits decreases in the bid-ask spread, but increases in the effective tick size. The patterns we observe in the data provide support for the model. We then discuss the plausibility of odd-eighth tick avoidance by market makers as a defense against SOES ...
متن کاملCompetitiveness and Price Setting in Dealer Markets
4 Federal Reserve Bank of Atlanta E C O N O M I C R E V I E W Third Quarter 1998 Bid and ask quotes are prices at which dealers or market makers are willing to transact. A market maker is an individual or firm that risks its own capital to provide investors with immediacy of supply and demand. The bidask spread represents the cost to investors of transacting with the market maker. Investors pre...
متن کاملMarket Microstructure Effects of Government Intervention in the Foreign Exchange Market
An asymmetric information model of the bid-ask spread is developed for foreign exchange market subject to occasional government interventions. Traditional tests of the unbiasedness of the forward rate as a predictor of the future spot rate are shown to be inconsistent when the rates are measured as the average of their respective bid and ask quotes. Larger bid-ask spreads on Fridays are documen...
متن کاملLimit tirders and the alleged Nasdaq collusion
DilTerent methods are used by thm NYSE,‘Amex and the Nasdaq to accommodate limit orders received from investors. This accounts for at least part of the excess of Nasdaq spreads over NYSE spreads, adjusted for trading volume, and is a factor in determining this excess tha: is independent of coitusion on the Nasdaq. The spread-comparison evidence given by others to support their belief that there...
متن کاملBid-ask Spread and Order Size in the Foreign Exchange Market: An Empirical Investigation
This article empirically examines the relationship between order sizes and spreads in the foreign exchange market based on a FX dealer’s quotes. It is found that spreads are independent of order sizes in the inter-dealer market, but they are negatively correlated in the customer market. JEL classification: F31; G14
متن کامل