The optimal bid/ask spread in a Specialist System
In this work we propose a simple market model where some features of the Specialist System are analyzed. In particular, the specialist's obligation to display bid/ask quotes on the book within the bounds imposed by the Exchange is considered. The proposed model allows to analyze the effects of the specialist's interventions on the short term dynamics of bid/ask prices and address a relevant market design issue, that is determination and analysis of the optimal endogenous upper bound that - according to economic conditions - should be imposed by Stock Exchange on the quoted bid/ask spread. The institutional details are summarized in a few structural parameters and the focus is on the aggregate effects of excess demand/supply.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brennan, Michael J. & Subrahmanyam, Avanidhar, 1996. "Market microstructure and asset pricing: On the compensation for illiquidity in stock returns," Journal of Financial Economics, Elsevier, vol. 41(3), pages 441-464, July.
- Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
- Madhavan, Ananth & Smidt, Seymour, 1993. " An Analysis of Changes in Specialist Inventories and Quotations," Journal of Finance, American Finance Association, vol. 48(5), pages 1595-1628, December.
- Shackleton, Mark B. & Sodal, Sigbjorn, 2005. "Smooth pasting as rate of return equalization," Economics Letters, Elsevier, vol. 89(2), pages 200-206, November.
- Stoll, Hans R, 1978.
"The Supply of Dealer Services in Securities Markets,"
Journal of Finance,
American Finance Association, vol. 33(4), pages 1133-1151, September.
- Hans R. Stoll, "undated". "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 02-78, Wharton School Rodney L. White Center for Financial Research.
- Hans R. Stoll, "undated". "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 2-78, Wharton School Rodney L. White Center for Financial Research.
- Corwin, Shane A., 2004. "Specialist performance and new listing allocations on the NYSE: an empirical analysis," Journal of Financial Markets, Elsevier, vol. 7(1), pages 27-51, January.
- Asparouhova, Elena & Bossaerts, Peter & Plott, Charles, 2003. "Excess demand and equilibration in multi-security financial markets: the empirical evidence," Journal of Financial Markets, Elsevier, vol. 6(1), pages 1-21, January.
- Dixit, Avinash, 1991. "A simplified treatment of the theory of optimal regulation of Brownian motion," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 657-673, October.
- Fernando, Chitru S., 2003. "Commonality in liquidity: transmission of liquidity shocks across investors and securities," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 233-254, July.
- Christine A. Parlour & Duane J. Seppi, 2003. "Liquidity-Based Competition for Order Flow," Review of Financial Studies, Society for Financial Studies, vol. 16(2), pages 301-343.
- Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
- Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Farmer, J. Doyne & Joshi, Shareen, 2002. "The price dynamics of common trading strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 149-171, October.
- J. Doyne Farmer & Shareen Joshi, 2000. "The Price Dynamics of Common Trading Strategies," Working Papers 00-12-069, Santa Fe Institute.
- J. Doyne Farmer & Shareen Joshi, 2000. "The price dynamics of common trading strategies," Papers cond-mat/0012419, arXiv.org.
- Dumas, Bernard, 1991. "Super contact and related optimality conditions," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 675-685, October.
- Goldman, M Barry & Beja, Avraham, 1979. "Market Prices vs. Equilibrium Prices: Returns' Variance, Serial Correlation, and the Role of the Specialist," Journal of Finance, American Finance Association, vol. 34(3), pages 595-607, June.
- Anand, Amber & Weaver, Daniel G., 2006. "The value of the specialist: Empirical evidence from the CBOE," Journal of Financial Markets, Elsevier, vol. 9(2), pages 100-118, May.
- Heidle, Hans G. & Huang, Roger D., 2002. "Information-Based Trading in Dealer and Auction Markets: An Analysis of Exchange Listings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(03), pages 391-424, September.
- Bondarenko, Oleg & Sung, Jaeyoung, 2003. "Specialist participation and limit orders," Journal of Financial Markets, Elsevier, vol. 6(4), pages 539-571, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:28:y:2011:i:5:p:2247-2253. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.