Price Impacts and Quote Adjustment on the NASDAQ and Nyse/Amex

Paine Webber Working Paper No. 99-08

36 Pages Posted: 7 Oct 1999

See all articles by Charles M. Jones

Charles M. Jones

Columbia Business School

Marc L. Lipson

University of Virginia - Darden School of Business

Date Written: June 1999


We compare the price impact of trades across market structures by examining firms that switch exchanges. When firms are listed on Nasdaq, quoted prices adjust quite slowly to the information contained in order flow. On average, it takes about 5 minutes (or about 6 transactions) for half of the eventual price impact to be incorporated into quotes. In contrast, quotes in NYSE and AMEX firms adjust much more quickly, with half-lives around one transaction. This has important implications for measures of adverse selection or information content. Price impacts are likely to be severely downward biased (particularly on Nasdaq) if they are estimated using only the immediate quote response. For example, using immediate price impacts (e.g., the change in quotes prior to the next trade), Nasdaq price impacts are far smaller than NYSE price impacts (1 vs. 9 basis points). Using cumulative price impacts four hours later, the conclusions are different: price impacts average about 20 bps on both exchanges. In terms of methodology, quote adjustment is too slow to be explained solely by the Madhavan, Richardson, and Roomans (1997) model. For this reason, we model midpoint adjustment using both a VAR and a partial adjustment model. We also discuss possible explanations for this phenomenon.

JEL Classification: G12

Suggested Citation

Jones, Charles M. and Lipson, Marc Lars, Price Impacts and Quote Adjustment on the NASDAQ and Nyse/Amex (June 1999). Paine Webber Working Paper No. 99-08. Available at SSRN: or

Charles M. Jones (Contact Author)

Columbia Business School ( email )

3022 Broadway
Uris Hall Rm 101
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(212) 854-4109 (Phone)

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Marc Lars Lipson

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)


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