Market makers' supply and pricing of financial market liquidity

Article, Preprint OPEN
Shen, Pu; Starr, Ross M.;
(2000)
  • Publisher: eScholarship, University of California
  • Subject: bid-ask spread | Financial markets ; Liquidity (Economics)
    acm: TheoryofComputation_GENERAL

This study models the bid-ask spread in financial markets as a function of asset price variability and order flow. The market-maker is characterized as passively accepting orders to buy and to sell a security at the market's prevailing price (plus or minus half the bid-... View more
  • References (9)

    Copeland, Thomas E., and Dan Galai 1983, “Information Effects on the Bid-Ask Spread”. The Journal of Finance, vol. 38, 1457-1469.

    Easley, David, and Maureen O'Hara 1987, “Price, Trade Size, and Information in Securities Markets”. Journal of Financial Economics, vol. 19, no.1, 69-90.

    Garman, Mark B. 1976, “Market Microstructure”. The Journal of Finance, vol. 3, no. 2, 257- 275.

    Glosten, Lawrence R., and Paul R. Milgrom 1985, “Bid, Ask, and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders”. Journal of Financial Economics, vol. 14, no. 1, 71-100.

    Hasbrouck, Joel, and George Sofianos 1993, “The Trades of Market Makers: An Empirical Analysis of NYSE Specialists”. The Journal of Finance, vol. 48, no.5, 1565-1593.

    Ho, Thomas. S.Y., and Hans R. Stoll 1981, “Optimal Dealer Pricing under Transactions and Return Uncertainty”. Journal of Financial Economics, vol. 9, no. 1, 47-73.

    Madhavan, Ananth 2000, “Market Microstructure: A Survey”. Journal of Financial Markets, vol. 3, 205-258.

    O'Hara, Maureen, and George S. Oldfield 1986, “The Microeconomics of Market Making”. Journal of Financial and Quantitative Analysis, vol. 21, no. 4, 361-376.

    Stoll, Hans R. Sept. 1978, “The Supply of Dealer Services in Securities Markets”. The Journal of Finance, vol. 33, no. 4, 1133-1151.

  • Metrics
Share - Bookmark