Effect of the Actual Size Rule Under Market Stress

David Porter, Yusif Simaan (), Daniel Weaver () and David Whitcomb ()

Review of Quantitative Finance and Accounting, 2006, vol. 26, issue 2, 87-103

Abstract: We examine the introduction of the Actual Size Rule (ASR) on Nasdaq during a control period and a period of market stress. We find that market makers in both ASR and Non-ASR stocks reduce quotation sizes and widen spreads when under stress but the reduction of quotation size and increase in spread width are significantly larger for ASR stocks. We also examine October 27, when the market was under the most severe stress. We find ASR and Non-ASR stocks have similar reductions in time-weighted quotation ask size when compared with the control sample but ASR bid sizes are about 10% smaller than Non-ASR bid sizes. Our findings imply that the ASR rule may significantly reduce market quality under times of market stress. Copyright Springer Science + Business Media, Inc. 2006

Keywords: NASDAQ; actual size rule; market stress (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1007/s11156-006-7211-2

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