Bid-Ask Spreads in Multiple Dealer Settings: Some Experimental Evidence

Ackert, Lucy F.; Church, Bryan K.

doi:10.2139/ssrn.119628

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Bid-Ask Spreads in Multiple Dealer Settings: Some Experimental Evidence

Working Paper 98-9

30 Pages Posted: 3 Sep 1998

See all articles by Lucy F. Ackert

Lucy F. Ackert

Kennesaw State University - Michael J. Coles College of Business

Bryan K. Church

Georgia Institute of Technology - Accounting Area

Date Written: June 1998

Abstract

We report the results of an experiment designed to investigate the behavior of quoted spreads in multiple-dealer markets. We manipulate verbal communication (not allowed and allowed) and order preferencing (not allowed, allowed, and allowed with order-flow payment) between eighteen sessions. Without preferencing, spreads are wider when communication is allowed. With preferencing (and no order-flow payments), individuals do not have incentives to narrow the spread and a wide spread may be maintained without a collusive agreement. However, spreads narrow somewhat when individuals are given the opportunity to compete using alternatives to price (that is, payment for order flow).

JEL Classification: G10, G18

Suggested Citation: Suggested Citation

Ackert, Lucy F. and Church, Bryan K., Bid-Ask Spreads in Multiple Dealer Settings: Some Experimental Evidence (June 1998). Working Paper 98-9, Available at SSRN: https://ssrn.com/abstract=119628 or http://dx.doi.org/10.2139/ssrn.119628