Entry, exit, market makers, and the bid-ask spread

Research output: Contribution to journalArticlepeer-review

48 Scopus citations


The probability of entry and exit of dealers on the NASDAQ National Market (NNM) is significantly affected by trading intensity, volatility and the quoted bid-ask spread. Entry and exit of market makers is a pervasive phenomenon. Largescale entry (exit) is associated with substantial declines (increases) in quoted end-of-day inside spreads, even after controlling for the effects of changes in volume and volatility. The spread changes are larger in magnitude for issues with few market makers; however, even for issues with a large number of market makers, substantial changes in quoted spreads take place. The results are consistent with the competitive model of dealer pricing.

Original languageEnglish (US)
Pages (from-to)871-901
Number of pages31
JournalReview of Financial Studies
Issue number3
StatePublished - Jan 1 1997
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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