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Intraday behavior of market depth in a competitive dealer market: A note

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  • Alex Frino
  • Andrew Lepone
  • Grant Wearin

Abstract

This study is the first to examine the intraday behavior of quoted depth in a competitive dealer market. In sharp contrast to previous research that focuses on specialist markets, quoted depth is lowest at the open of trading, plateaus around the middle of the day, and then dramatically increases in the final hours of trading, peaking at the close. This peak in quoted depth coincides with a narrowing in bid‐ask spreads, and is contrary to intraday patterns documented for specialist markets. The authors conclude that the increase in depth and narrowing of bid‐ask spreads at the close is driven by dealers rebalancing inventories to achieve target inventory levels in a competitive market. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:294–307, 2008

Suggested Citation

  • Alex Frino & Andrew Lepone & Grant Wearin, 2008. "Intraday behavior of market depth in a competitive dealer market: A note," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(3), pages 294-307, March.
    • Handle: RePEc:wly:jfutmk:v:28:y:2008:i:3:p:294-307
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    Cited by:

    1. Mehdi Arzandeh & Julieta Frank, 2019. "Price Discovery in Agricultural Futures Markets: Should We Look beyond the Best Bid-Ask Spread?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(5), pages 1482-1498.
    2. Arzandeh, Mehdi & Frank, Julieta, 2017. "The Information Content of the Limit Order Book," 7th Annual Canadian Agri-Food Policy Conference, January 11-13, 2017, Ottawa, ON 253251, Canadian Agricultural Economics Society.
    3. Arzandeh, Mehdi & Frank, Julieta, 2017. "Price Discovery in Agricultural Futures Markets: Should We Look Beyond the Best Bid-Ask Spread?," Annual Meeting, 2017, June 18-21, Montreal, Canada 259344, Canadian Agricultural Economics Society.
    4. Xiaoyang Wang & Philip Garcia & Scott H. Irwin, 2014. "The Behavior of Bid-Ask Spreads in the Electronically-Traded Corn Futures Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(2), pages 557-577.
    5. Mehdi Arzandeh & Julieta Frank, 2019. "Price Discovery in Agricultural Futures Markets: Should We Look beyond the Best Bid‐Ask Spread?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 101(5), pages 1482-1498, October.

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