Price and quantity quotes on NASDAQ: A study of dealer quotation behavior

Kee H. Chung, Xin Zhao

Research output: Contribution to journalReview article

9 Scopus citations

Abstract

We show that the majority of quotes posted by NASDAQ dealers are noncompetitive and only 19.5% (18.4%) of bid (ask) quotes are at the inside. The percentage of dealer quotes that are at the inside is higher for stocks with wider spreads, fewer market makers, and more frequent trading, and lower for stocks with larger trade sizes and higher return volatility. These results support our conjecture that dealers have greater incentives to be at the inside for stocks with larger market-making revenues and smaller costs. Dealers post large depths when their quotes are at the inside and frequently quote the minimum required depth when they are not at the inside. The latter quotation behavior leads to the negative intertemporal correlation between dealer spread and depth.

Original languageEnglish (US)
Pages (from-to)497-519
Number of pages23
JournalJournal of Financial Research
Volume27
Issue number4
DOIs
StatePublished - Dec 1 2004

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance

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