Nasdaq Trading and Trading Costs: 1993–2002

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

The Financial Review, 2005, vol. 40, issue 3, 281-304

Abstract: Nasdaq spreads decline from 1993 to 2002, largely independently of tick‐size reductions. Trade size declines, consistent with greater retail investor activity. Using the method of Chordia, Roll, and Subrahmanyam (2001), we find that concurrent market returns strongly affect liquidity and trading activity. Liquidity exhibits distinct day‐of‐the‐week patterns. There is little evidence that macroeconomic announcements or changes in key interest rates affect Nasdaq stocks overall; but in the bear market, we find a relation between some of these variables and effective spreads, which we interpret as consistent with Nasdaq participants' paying greater attention to fundamentals after the market crash.

Date: 2005
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