Nasdaq market structure and spread patterns

Published

Journal Article

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.

Full Text

Duke Authors

Cited Authors

  • Kandel, E; Marx, LM

Published Date

  • January 1, 1997

Published In

Volume / Issue

  • 45 / 1

Start / End Page

  • 61 - 89

International Standard Serial Number (ISSN)

  • 0304-405X

Digital Object Identifier (DOI)

  • 10.1016/S0304-405X(96)00894-X

Citation Source

  • Scopus