Bid-Ask Spreads and the Avoidance of Odd-Eighth Quotes on NASDAQ: An Examination of Exchange Listings

Posted: 1 Jul 1998

See all articles by Michael J. Barclay

Michael J. Barclay

University of Rochester - Simon School (Deceased)

Date Written: 1996

Abstract

This paper provides additional evidence on the relation between bid-ask spreads and the avoidance of odd-eighth quotes on NASDAQ by examining 472 firms that moved from NASDAQ to the NYSE or Amex. When NASDAQ market makers avoid odd-eighth quotes, bid-ask spreads are large and decline dramatically with exchange listing. When market makers use both odd and even eighths, bid-ask spreads are smaller and decline only slightly with exchange listing. After exchange listing, there is little difference between these groups. The large spreads observed when NASDAQ market makers avoid odd-eighth quotes cannot be explained entirely by firm-specific characteristics. Instead, the results support the claim that the avoidance of odd-eighth quotes by NASDAQ market makers increases bid-ask spreads beyond the competitive level.

JEL Classification: G10

Suggested Citation

Barclay, Michael J., Bid-Ask Spreads and the Avoidance of Odd-Eighth Quotes on NASDAQ: An Examination of Exchange Listings (1996). Available at SSRN: https://ssrn.com/abstract=7343

Michael J. Barclay (Contact Author)

University of Rochester - Simon School (Deceased)

N/A

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