IDEAS home Printed from https://ideas.repec.org/a/bla/finrev/v37y2002i3p403-419.html
   My bibliography  Save this article

The Effect of Market Structure on the Incentives to Quote Aggressively: An Empirical Study of Nasdaq Market Makers

Author

Listed:
  • Mark Klock
  • D. Timothy McCormick

Abstract

We use data on Nasdaq stocks to study arguments that preferencing reduces incentives to quote competitively. We examine a market maker’s volume as a function of various measures of quoting aggressiveness. We find that more aggressive quoting does indeed result in more business. We also examine the relation between volume and quote aggressiveness as a function of the competitiveness. We find that in less (more) competitive markets, increased quote aggressiveness has a smaller (larger) impact on market share. We argue that preferencing arrangements could be more harmful to public investors in markets where competition is weak.

Suggested Citation

  • Mark Klock & D. Timothy McCormick, 2002. "The Effect of Market Structure on the Incentives to Quote Aggressively: An Empirical Study of Nasdaq Market Makers," The Financial Review, Eastern Finance Association, vol. 37(3), pages 403-419, August.
    • Handle: RePEc:bla:finrev:v:37:y:2002:i:3:p:403-419
    DOI: 10.1111/1540-6288.00021
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1540-6288.00021
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1540-6288.00021?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Locke, Peter R. & Sarajoti, Pattarake, 2004. "Aggressive dealer pricing," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(4), pages 559-573, September.
    2. Lescourret, Laurence & Robert, Christian Y., 2011. "Transparency matters: Price formation in the presence of order preferencing," Journal of Financial Markets, Elsevier, vol. 14(2), pages 227-258, May.
    3. Lescourret, Laurence & Robert, Christian Y., 2006. "Preferencing, internalization and inventory position," ESSEC Working Papers DR 06017, ESSEC Research Center, ESSEC Business School.
    4. S. Ghon Rhee & Ning Tang, 2013. "Can quote competition reduce preferenced trading? A reexamination of the SEC’s 1997 order handling rules," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(1), pages 243-264, March.
    5. Chung, Kee H. & Chuwonganant, Chairat, 2007. "Quote-based competition, market share, and execution quality in NASDAQ-listed securities," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2770-2795, September.
    6. Laurence Lescourret & Christian Y, Robert, 2002. "Preferencing and Dealer Inventory," Working Papers 2002-54, Center for Research in Economics and Statistics.
    7. Chung, Kee H. & Chuwonganant, Chairat & McCormick, D. Timothy, 2006. "Does internalization diminish the impact of quote aggressiveness on dealer market share?," Journal of Financial Intermediation, Elsevier, vol. 15(1), pages 108-131, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:finrev:v:37:y:2002:i:3:p:403-419. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/efaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.