Entry, exit, market makers, and the bid-ask spread

Research output: Contribution to journalArticle

46 Citations (Scopus)

Abstract

The probability of entry and exit of dealers on the NASDAQ National Market (NNM) is significantly affected by trading intensity, volatility and the quoted bid-ask spread. Entry and exit of market makers is a pervasive phenomenon. Largescale entry (exit) is associated with substantial declines (increases) in quoted end-of-day inside spreads, even after controlling for the effects of changes in volume and volatility. The spread changes are larger in magnitude for issues with few market makers; however, even for issues with a large number of market makers, substantial changes in quoted spreads take place. The results are consistent with the competitive model of dealer pricing.

Original languageEnglish (US)
Pages (from-to)871-901
Number of pages31
JournalReview of Financial Studies
Volume10
Issue number3
StatePublished - Sep 1997
Externally publishedYes

Fingerprint

Market makers
Bid/ask spread
Exit
Dealers
Entry and exit
Trade intensity
Pricing
Competitive model

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

Entry, exit, market makers, and the bid-ask spread. / Wahal, Sunil.

In: Review of Financial Studies, Vol. 10, No. 3, 09.1997, p. 871-901.

Research output: Contribution to journalArticle

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