Market Making and Trading in NASDAQ Stocks
The Financial Review
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.
Finance and Financial Management | Portfolio and Security Analysis
Goldstein, Michael A., Edward F. Nelling. 1999. "Market Making and Trading in NASDAQ Stocks." Financial Review 34: no. 1: 27-44.