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Price Impacts and Quote Adjustment on the Nasdaq and NYSE/AMEX


  • Jones, C.M.
  • Lipson, M.L.


We compare the price impact of trades across market structures by examining firms that switch exchanges. When firms are listed on Nasdaq, quoted prices adjust quite slowly to the information contained in order flow. On average, it takes about 5 minutes (or about 6 transactions) for half of the eventual price impact to be incorporated into quotes. In contrast, quotes in NYSE and AMEX firms adjust much more quickly, with half-lives around one transaction. This has important implications for measures of adverse selection or information content. Price impacts are likely to be severely downward biased (particularly on Nasdaq) if they are estimated using only the immediate quote response. For example, using immediate price impacts (e.g., the change in quotes prior to the next trade), Nasdaq price impacts are far smaller than NYSE price impacts (1 vs. 9 basis points). Using cumulative price impacts four hours later, the conclusions are different: price impacts average about 20 bps on both exchanges. In terms of methodology, quote adjustment is too slow to be explained solely by the Madhavan, Richardson, and Roomans (1997) model. For this reason, we model midpoint adjustment using both a VAR and a partial adjustment model. We also discuss possible explanations for this phenomenon.

Suggested Citation

  • Jones, C.M. & Lipson, M.L., 1999. "Price Impacts and Quote Adjustment on the Nasdaq and NYSE/AMEX," Papers 99-8, Columbia - Graduate School of Business.
  • Handle: RePEc:fth:colubu:99-8

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    References listed on IDEAS

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    Cited by:

    1. Fotak, Veljko & Raman, Vikas & Yadav, Pradeep K., 2014. "Fails-to-deliver, short selling, and market quality," Journal of Financial Economics, Elsevier, vol. 114(3), pages 493-516.
    2. Chen, Crystal Xiaobei & Rhee, S. Ghon, 2010. "Short sales and speed of price adjustment: Evidence from the Hong Kong stock market," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 471-483, February.
    3. Michele O’Neill, 2002. "Do institutions care about market structure? A case study of listing firms," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 26(1), pages 50-62, March.
    4. Loderer, Claudio & Roth, Lukas, 2005. "The pricing discount for limited liquidity: evidence from SWX Swiss Exchange and the Nasdaq," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 239-268, March.
    5. Gregory Hebb & Gregory MacKinnon, 2004. "Valuation uncertainty and IPOs: Investment bank versus commercial bank underwriters," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(1), pages 68-87, March.

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


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