Title

Market Making and Trading in NASDAQ Stocks

(with Edward F. Nelling)

Selected papers by Michael A. Goldstein are available on SSRN at http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=54604

Publication

The Financial Review

DOI*

http://dx.doi.org/10.1111/j.1540-6288.1999.tb00443.x

Abstract

This paper examines the relations between the number of market makers, trading activity, and price improvement in Nasdaq stocks, using a model motivated by Grossman and Miller (1988). Results indicate a positive relation between the number of market makers and trading frequency, and that competition among market makers reduces effective bid-ask spreads. Results estimated using a simultaneous equations framework support the model predictions of Grossman and Miller. Results also indicate that trading frequency may be more important than trade size in determining the number of market makers.

Disciplines

Finance and Financial Management | Portfolio and Security Analysis

Recommended Citation

Goldstein, Michael A., Edward F. Nelling. 1999. "Market Making and Trading in NASDAQ Stocks." Financial Review 34: no. 1: 27-44.

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