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A Specialist's Quoted Depth and the Limit Order Book

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Author Info
Kenneth A. Kavajecz (Wharton School, University of Pennsylvania)
Abstract

By partitioning quoted depth into the specialist's contribution and the limit order book's contribution, the paper investigates whether specialists manage quoted depth to reduce adverse selection risk. The results show that both specialists and limit order traders reduce depth around information events, thereby reducing their exposure to adverse selection costs. Moreover, specialists' quotes may reflect only the limit order book on the side (or sides) of the market where they believe there is a chance of informed trading. Changes in quoted depth are consistent with specialists managing their inventory as well as having knowledge of the stock's future value. Copyright The American Finance Association 1999.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 54 (1999)
Issue (Month): 2 (04)
Pages: 747-771
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Handle: RePEc:bla:jfinan:v:54:y:1999:i:2:p:747-771

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  1. Thierry Foucault & Ohad Kadan & Eugene Kandel, 2003. "Limit Order Book as a Market for Liquidity," Discussion Paper Series dp321, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
    Other versions:
  2. Hollifield, Burton & Miller, Robert & Sandås, Patrik, 2001. "Empirical Analysis of Limit Order Markets," CEPR Discussion Papers 2843, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. David Michayluk & Paul Kofman, 2001. "Market Structure and Stock Splits," Research Paper Series 62, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  4. Jeremy Large, 2006. "A Market-Clearing Role for Inefficiency on a Limit Order Book," Economics Papers 2006-W08, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  5. Alvaro Escribano & Roberto Pascual, 2006. "Asymmetries in bid and ask responses to innovations in the trading process," Empirical Economics, Springer, vol. 30(4), pages 913-946, January. [Downloadable!] (restricted)
  6. Coluzzi, Chiara & Ginebri, Sergio & Turco, Manuel, 2008. "Measuring and Analyzing the Liquidity of the Italian Treasury Security Wholesale Secondary Market," Economics & Statistics Discussion Papers esdp08044, University of Molise, Dept. SEGeS. [Downloadable!]
  7. Jung-Wook Kim & Jason Lee & Randall Morck, 2009. "Characteristics of Observed Limit Order Demand and Supply Schedules for Individual Stocks," NBER Working Papers 14733, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Sigridur Benediktsdottir, 2006. "An empirical analysis of specialist trading behavior at the New York Stock Exchange," International Finance Discussion Papers 876, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  9. Buti, Sabrina, 2007. "A Challenger to the Limit Order Book: The NYSE Specialist," SIFR Research Report Series 55, Institute for Financial Research. [Downloadable!]
  10. Cumhur Ekinci, 2005. "Limit Order Book Reconstruction And Beyond: An Application To Istanbul Stock Exchange," Finance 0510025, EconWPA, revised 24 Oct 2005. [Downloadable!]
  11. Roberto Pascual & Bartolomé Pascual-Fuste & Francisco Climent, 2001. "Cross-listing, Price Discovery and the Informativeness of the Trading Process," Business Economics Working Papers wb014511, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
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