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Intraday Variation in the Bid‐Ask Spread: Evidence after the Market Reform

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  • Kee H. Chung
  • Xin Zhao

Abstract

In this article we show that intraday variation in spreads for Nasdaq‐listed stocks has converged to intraday variation in spreads for NYSE‐listed stocks after the implementation of the new order‐handling rules. We attribute this convergence to the Limit Order Display Rule, which requires that limit orders be displayed in Nasdaq best bid and offer when they are better than quotes posted by market makers. Our findings suggest that the different patterns of intraday spreads between NYSE and Nasdaq stocks reported in prior studies can largely be attributed to the different treatment of limit orders between the NYSE and Nasdaq before the market reform.

Suggested Citation

  • Kee H. Chung & Xin Zhao, 2003. "Intraday Variation in the Bid‐Ask Spread: Evidence after the Market Reform," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(2), pages 191-206, June.
    • Handle: RePEc:bla:jfnres:v:26:y:2003:i:2:p:191-206
    DOI: 10.1111/1475-6803.00054
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    1. Chung, Kee H. & Van Ness, Bonnie F. & Van Ness, Robert A., 1999. "Limit orders and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 53(2), pages 255-287, August.
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    Cited by:

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    3. Holden, Craig W., 2009. "New low-frequency spread measures," Journal of Financial Markets, Elsevier, vol. 12(4), pages 778-813, November.
    4. Frijns, Bart & Schotman, Peter C., 2006. "Nonlinear dynamics in Nasdaq dealer quotes," Computational Statistics & Data Analysis, Elsevier, vol. 51(4), pages 2246-2266, December.
    5. Frank Heflin & Kenneth W. Shaw & John J. Wild, 2007. "Disclosure policy and intraday spread patterns," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 6(3), pages 285-303, August.
    6. Chiu, Junmao & Tsai, Kunchi, 2017. "Government interventions and equity liquidity in the sub-prime crisis period: Evidence from the ETF market," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 128-142.
    7. George Tannous & Juan Wang & Craig Wilson, 2013. "The Intraday Pattern of Information Asymmetry, Spread, and Depth: Evidence from the NYSE," International Review of Finance, International Review of Finance Ltd., vol. 13(2), pages 215-240, June.
    8. Junmao Chiu & Huimin Chung & Keng-Yu Ho, 2014. "Fear Sentiment, Liquidity, and Trading Behavior: Evidence from the Index ETF Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(03), pages 1-25.

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