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The Next Tick on Nasdaq: Does Level II Information Matter?

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  • Bruce Mizrach

    (Rutgers University)

Abstract

The Nasdaq stock market provides information about buying and selling interest in what is called the Level II display. Using a bivariate VAR model of trades and quotes, I assess the effect of Level II prices and depths on short-run quote dynamics. I also determine the influence of individual market makers and electronic networks and find evidence of strategic behavior. Finally, I produce a set of dynamic market price responses to buy and sell orders, and I find that these estimates vary with standard measures of liquidity.

Suggested Citation

  • Bruce Mizrach, 2002. "The Next Tick on Nasdaq: Does Level II Information Matter?," Departmental Working Papers 200202, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200202
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    References listed on IDEAS

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    1. Hasbrouck, Joel, 1991. "Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
    2. Christie, William G & Schultz, Paul H, 1994. "Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-1840, December.
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    6. Madhavan, Ananth & Cheng, Minder, 1997. "In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets," The Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 175-203.
    7. James Weston, 2002. "Electronic Communication Networks and Liquidity on the Nasdaq," Journal of Financial Services Research, Springer;Western Finance Association, vol. 22(1), pages 125-139, August.
    8. Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, vol. 66(5), pages 1127-1162, September.
    9. Bruce Mizrach & Yijie Zhang, 2000. "Should ECNs be SOES-able?," Departmental Working Papers 200010, Rutgers University, Department of Economics.
    10. Klock, Mark & McCormick, D Timothy, 1999. "The Impact of Market Maker Competition on Nasdaq Spreads," The Financial Review, Eastern Finance Association, vol. 34(4), pages 55-73, November.
    11. Michael J. Barclay & William G. Christie & Jeffrey H. Harris & Eugene Kandel & Paul H. Schultz, 1999. "Effects of Market Reform on the Trading Costs and Depths of Nasdaq Stocks," Journal of Finance, American Finance Association, vol. 54(1), pages 1-34, February.
    12. James P. Weston, 2000. "Competition on the Nasdaq and the Impact of Recent Market Reforms," Journal of Finance, American Finance Association, vol. 55(6), pages 2565-2598, December.
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    Cited by:

    1. Bruce Mizrach, 2003. "Analyst Recommendations and Nasdaq Market Making Activity," Departmental Working Papers 200307, Rutgers University, Department of Economics.

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    More about this item

    Keywords

    Nasdaq; Level II; microstructure; tick;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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