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Trading Mechanisms and the Components of the Bid-Ask Spread

  • Affleck-Graves, John
  • Hegde, Shantaram P
  • Miller, Robert E
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    The authors compare the relative magnitudes of the components of the bid-ask spread for New York Stock Exchange (NYSE)/American Stock Exchange (AMEX) stocks to those of National Association of Securities Dealers Automated Quotations (NASDAQ)/National Market System (NMS) stocks. They find that the order-processing cost component is smaller, and the adverse selection component is greater, on the NYSE/AMEX trading systems than on the NASDAQ/NMS system. The inventory holding component is also greater for exchange-traded stocks than for NASDAQ/NMS stocks, but this may be attributable to differences in the characteristics of the firms whose stocks trade on the respective systems. Copyright 1994 by American Finance Association.

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

    Volume (Year): 49 (1994)
    Issue (Month): 4 (September)
    Pages: 1471-88

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    Handle: RePEc:bla:jfinan:v:49:y:1994:i:4:p:1471-88
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