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Why did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?

Posted: 2 May 2000  

William G. Christie

Vanderbilt University - Finance; Vanderbilt University - Law School

Jeffrey H. Harris

American University

Paul H. Schultz

University of Notre Dame - Department of Finance

Abstract

On May 26 and 27, 1994, several national newspapers reported the findings of Christie and Schultz (1994) who cannot reject the hypothesis that market makers of active NASDAQ stocks implicitly colluded to maintain spreads of at least $.25 by avoiding odd-eighth quotes. On May 27, dealers in Amgen, Cisco Systems, and Microsoft sharply increased their use of odd-eighth quotes, and mean inside and effective spreads fell nearly 50%. This pattern was repeated for Apple Computer the following trading day. Using individual dealer quotes for Apple and Microsoft, we find that virtually all dealers moved in unison to adopt odd-eighth quotes.

JEL Classification: G14

Suggested Citation

Christie, William G. and Harris, Jeffrey H. and Schultz, Paul H., Why did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?. JOURNAL OF FINANCE, VOL. 49, NO. 5, December 1994. Available at SSRN: https://ssrn.com/abstract=5657

Wiliam G. Christie

Vanderbilt University - Finance ( email )

401 21st Avenue South
Owen Graduate School of Management
Nashville, TN 37203
United States
615-343-7802 (Phone)
615-343-7177 (Fax)

Vanderbilt University - Law School

131 21st Avenue South
Nashville, TN 37203-1181
United States

Jeffrey H. Harris

American University ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

Paul H. Schultz (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
219-631-3338 (Phone)
219-631-5255 (Fax)

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