THE IMPACT OF MARKET MAKER CONCENTRATION ON ADVERSE‐SELECTION COSTS FOR NASDAQ STOCKS

Bonnie F. Van Ness, Robert A. Van Ness and Richard S. Warr

Journal of Financial Research, 2005, vol. 28, issue 3, 461-485

Abstract: We examine the impact of market maker concentration on adverse‐selection costs for NASDAQ stocks and find that more market makers results in lower costs. Furthermore, this reduction in adverse selection exceeds the overall reduction in spreads that is attributable to market maker competition. We hypothesize that order flow internalization is increasing in market makers and allows for greater information production, and is an explanation for our findings. Our results provide an explanation for the puzzle documented by previous work that finds that adverse‐selection costs for NASDAQ tend to be lower than for the New York Stock Exchange, whereas spreads tend to be higher.

Date: 2005
References: View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://doi.org/10.1111/j.1475-6803.2005.00134.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:28:y:2005:i:3:p:461-485

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-2592

Access Statistics for this article

Journal of Financial Research is currently edited by Jayant Kale and Gerald Gay

More articles in Journal of Financial Research from Southern Finance Association Contact information at EDIRC., Southwestern Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().