IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v56y2021i8p2764-2799_6.html
   My bibliography  Save this article

Quoting Activity and the Cost of Capital

Author

Listed:
  • Rosu, Ioanid
  • Sojli, Elvira
  • Tham, Wing Wah

Abstract

We study the quoting activity of market makers in relation to trading, liquidity, and expected returns. Empirically, we find larger quote-to-trade (QT) ratios in small, illiquid, or neglected firms, yet large QT ratios are associated with low expected returns. The last result is driven by quotes, not by trades. We propose a model of quoting activity consistent with these facts. In equilibrium, market makers monitor the market faster (and thus increase the QT ratio) in neglected, difficult-to-understand stocks. They also monitor faster when their clients are more precisely informed, which reduces mispricing and lowers expected returns.

Suggested Citation

  • Rosu, Ioanid & Sojli, Elvira & Tham, Wing Wah, 2021. "Quoting Activity and the Cost of Capital," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(8), pages 2764-2799, December.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:8:p:2764-2799_6
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S002210902000071X/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    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:cup:jfinqa:v:56:y:2021:i:8:p:2764-2799_6. 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: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    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.