Limit Orders and the Bid-Ask Spread
38 Pages Posted: 3 Jun 2003
There are 2 versions of this paper
Limit Orders and the Bid-Ask Spread
Limit Orders and the Bid-Ask Spread
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 Classification: G14
Suggested Citation: Suggested Citation
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