Intraday variation in the bid-ask spread: Evidence after the market reform

Kee H. Chung, Xin Zhao

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

In this article we show that intraday variation in spreads for Nasdaq-listed stocks has converged to intraday variation in spreads for NYSE-listed stocks after the implementation of the new order-handling rules. We attribute this convergence to the Limit Order Display Rule, which requires that limit orders be displayed in Nasdaq best bid and offer when they are better than quotes posted by market makers. Our findings suggest that the different patterns of intraday spreads between NYSE and Nasdaq stocks reported in prior studies can largely be attributed to the different treatment of limit orders between the NYSE and Nasdaq before the market reform.

Original languageEnglish (US)
Pages (from-to)191-206
Number of pages16
JournalJournal of Financial Research
Volume26
Issue number2
DOIs
StatePublished - Jan 1 2003

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance

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