Bid-ask spreads in multiple dealer settings: Some experimental evidence
AbstractWe report the results of an experiment designed to investigate the behavior of quoted spreads in multiple-dealer markets. We manipulate verbal communication (not allowed and allowed) and order preferencing (not allowed, allowed, and allowed with order-flow payment) between eighteen sessions. Without preferencing, spreads are wider when communication is allowed. With preferencing (and no order-flow payments), individuals do not have incentives to narrow the spread and a wide spread may be maintained without a collusive agreement. However, spreads narrow somewhat when individuals are given the opportunity to compete using alternatives to price (that is, payment for order flow).
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Bibliographic InfoPaper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 98-9.
Date of creation: 1998
Date of revision:
Publication status: Published in Financial Management, Spring 1999
Other versions of this item:
- Lucy F. Ackert & Bryan K. Church, 1999. "Bid-Ask Spreads in Multiple Dealer Settings: Some Experimental Evidence," Financial Management, Financial Management Association, vol. 28(1), Spring.
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