Entry, Exit, Market Makers and the Bid-Ask Spread

Posted: 26 Jan 1995

See all articles by Sunil Wahal

Sunil Wahal

Arizona State University (ASU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: March 1994

Abstract

This paper examines the determinants and effects of entry and exit of market makers on the National Market System. Entry is associated with an increase in trading volume, a temporary increase in volatility and a permanent decline in the bid-ask spread. Exit, on the other hand, is accompanied by a small decline in volume but a permanent increase in both volatility and the spread. The spread changes are related to entry/exit, even after controlling for changes in volume and volatility. These results suggest that inter- dealer competition is successful in driving down the spread.

JEL Classification: G10, L10

Suggested Citation

Wahal, Sunil, Entry, Exit, Market Makers and the Bid-Ask Spread (March 1994). Available at SSRN: https://ssrn.com/abstract=5800

Sunil Wahal (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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