Nasdaq market structure and spread patterns

• 成果类型: Article
• 署名作者: Kandel, E; Marx, LM
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(96)00894-X
• 发表日期: 1997
• 页码: 61-89
• 关键词: NASDAQ; odd-eighth avoidance; Bid-ask spread; Market makers

摘要

Because of its institutional features, the Nasdaq market does not fit the standard competitive model. We construct a model that reflects the distinguishing characteristics of the Nasdaq market. This model implies that in dealer markets with a minimum price increment, competition among market-makers does not necessarily drive spreads down to the level of marginal cost. Using this result, we provide an explanation for the odd-eighth avoidance documented in Christie and Schultz (1994). We show that market-makers can use odd-tick avoidance as a coordination device to increase spreads. Evidence from Nasdaq supports our hypotheses.