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

REVIEW OF FINANCIAL STUDIES, Vol. 10 No. 3

Posted: 2 Jul 1997

See all articles by Sunil Wahal

Sunil Wahal

Arizona State University (ASU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Abstract

The probability of entry/exit of dealers on the NASDAQ National Market (NNM) is significantly affected by trading intensity, volatility and the quoted bid-ask spread. Entry and exit of market makers is a pervasive phenomenon. Large scale entry (exit) is associated with substantial declines (increases) in quoted end-of-day inside spreads, even after controlling for the effects of changes in volume and volatility. The spread changes are larger in magnitude for issues with few market makers; however, even for issues with a large number of market makers, substantial changes in quoted spreads take place. The results are consistent with the competitive model of dealer pricing.

JEL Classification: G12, G14

Suggested Citation

Wahal, Sunil, Entry, Exit, Market Makers and the Bid-Ask Spread. REVIEW OF FINANCIAL STUDIES, Vol. 10 No. 3, Available at SSRN: https://ssrn.com/abstract=8397

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,064
PlumX Metrics