Making a market with spreads and depths

Kee H. Chung, Xin Zhao

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

In this paper we study the quote revision behavior of NASDAQ market makers by analyzing inter-temporal changes in their spread and depth quotes. Using individual dealer quote and trade data for a sample of 2, 319 stocks, we find that NASDAQ dealers make more frequent revisions in depths than in spreads and the extent of liquidity management is greater for stocks of smaller companies, lower-priced stocks, and stocks with larger trade sizes and fewer number of transactions. We show that intraday variation in the number of quote revisions follows the U-shaped pattern, indicating that the extent of liquidity management is greater during the early and late hours of trading than during midday.

Original languageEnglish (US)
Pages (from-to)1069-1097
Number of pages29
JournalJournal of Business Finance and Accounting
Volume31
Issue number7-8
DOIs
StatePublished - Sep 2004

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance

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