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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 SeriesDate posted: June 03, 2003 ; Last revised: June 03, 2003Suggested CitationContact Information
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