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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. Harris, Jeffrey H. & Schultz, Paul H., 1998. "The trading profits of SOES bandits," Journal of Financial Economics, Elsevier, vol. 50(1), pages 39-62, October.
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    4. Bruce Mizrach & Yijie Zhang, 2000. "Should ECNs be SOES-able?," Departmental Working Papers 200010, Rutgers University, Department of Economics.
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    6. 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.
    7. 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.
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    10. Bollerslev, Tim & Domowitz, Ian & Wang, Jianxin, 1997. "Order flow and the bid-ask spread: An empirical probability model of screen-based trading," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1471-1491, June.
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    12. 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.
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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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