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Limit orders and the bid-ask spread

Kee H. Chung
SUNY at Buffalo - School of Management

Bonnie F. Van Ness
University of Mississippi - Department of Finance

Robert A. Van Ness
University of Mississippi - Department of Finance




Abstract:     
We examine the role of limit-order traders and specialists in the market-making process. We find that a large portion of posted bid-ask quotes originates from the limit-order book without direct participation by specialists, and that competition between traders and specialists has a significant impact on the bid-ask spread. Specialists' spreads are widest at the open, narrow until late morning, and then level off. The U-shaped intraday pattern of spreads largely reflects the intraday variation in spreads established by limit-order traders. Lastly, the intraday variation in limit-order spreads is significantly related to the intraday variation in limit-order placements and executions.

Keywords: Limit order, Bid-ask spread, Specialists

JEL Classifications: G14

Working Paper Series

Date posted: June 03, 2003 ; Last revised: June 03, 2003

Suggested Citation

Chung, Kee H., Van Ness, Bonnie F. and Van Ness, Robert A., Limit orders and the bid-ask spread. Available at SSRN: http://ssrn.com/abstract=136725 or doi:10.2139/ssrn.136725


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Contact Information

Kee H. Chung (Contact Author)
SUNY at Buffalo - School of Management ( email )
Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)
HOME PAGE: http://mgt.buffalo.edu/home/faculty/academic/finance/faculty/keechung
Bonnie F. Van Ness
University of Mississippi - Department of Finance ( email )
Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)
Robert A. Van Ness
University of Mississippi - Department of Finance ( email )
Oxford, MS 38677
United States
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