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Dealer Markets Under Stress: The Performance of NASDAQ Market Makers During the November 15, 1991, Market Break

Dealer Markets Under Stress: The Performance of NASDAQ Market Makers During the November 15,... The liquidity of the NASDAQ market was seriously undermined during the crash on October 19, 1987, when bid-ask spreads widened dramatically and dealers reputedly withdrew from market making. This paper studies the liquidity of 36 NASDAQ issues on November 15, 1991, when average prices fell over 4%, representing the first major correction in the post-crash era. We find that bid-ask spreads, the percentage of dealers posting inside quotes, and trading volume remained virtually unaffected. Effective spreads were also largely unaffected, except for trades in excess of 1,000 shares among issues whose market makers avoided odd-eighth quotes. Our evidence implies that, unlike October 1987, the liquidity of the NASDAQ market did not deteriorate appreciably during this episode of unusual market stress. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Services Research Springer Journals

Dealer Markets Under Stress: The Performance of NASDAQ Market Makers During the November 15, 1991, Market Break

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References (8)

Publisher
Springer Journals
Copyright
Copyright © 1998 by Kluwer Academic Publishers
Subject
Finance; Financial Services; Macroeconomics/Monetary Economics//Financial Economics
ISSN
0920-8550
eISSN
1573-0735
DOI
10.1023/A:1008028226281
Publisher site
See Article on Publisher Site

Abstract

The liquidity of the NASDAQ market was seriously undermined during the crash on October 19, 1987, when bid-ask spreads widened dramatically and dealers reputedly withdrew from market making. This paper studies the liquidity of 36 NASDAQ issues on November 15, 1991, when average prices fell over 4%, representing the first major correction in the post-crash era. We find that bid-ask spreads, the percentage of dealers posting inside quotes, and trading volume remained virtually unaffected. Effective spreads were also largely unaffected, except for trades in excess of 1,000 shares among issues whose market makers avoided odd-eighth quotes. Our evidence implies that, unlike October 1987, the liquidity of the NASDAQ market did not deteriorate appreciably during this episode of unusual market stress.

Journal

Journal of Financial Services ResearchSpringer Journals

Published: Oct 13, 2004

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