The Dynamics of Quote Adjustments

45 Pages Posted: 27 Dec 2007 Last revised: 22 Jul 2008

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Chairat Chuwonganant

Kansas State University - Department of Finance

Jing Jiang

Sacred Heart University - Jack Welch College of Business, Department of Economics and Finance

Date Written: December 2007

Abstract

Liquidity providers on the NYSE make faster quote adjustments towards equilibrium spreads and depths than they do on NASDAQ. Liquidity providers in both markets make faster spread and depth adjustments for stocks with more frequent trading, greater return volatility, higher prices, smaller market capitalizations, and smaller trade sizes. We find that stocks with greater information-based trading and in more competitive trading environments exhibit faster quote adjustments. The speed of quote adjustment is faster after decimalization in both markets. These results are robust and not driven by differences in stock attributes between the two markets or time periods. Overall, our results indicate that stock attributes, market structure, and tick size exert a significant impact on the speed of quote adjustment.

Keywords: Spreads, Depths, Market structure, Market efficiency, Tick size, Quote revision, Adverse- selection costs

JEL Classification: G18, G19

Suggested Citation

Chung, Kee H. and Chuwonganant, Chairat and Jiang, Jing, The Dynamics of Quote Adjustments (December 2007). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1078800 or http://dx.doi.org/10.2139/ssrn.1078800

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Chairat Chuwonganant

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

Jing Jiang

Sacred Heart University - Jack Welch College of Business, Department of Economics and Finance ( email )

5151 Park Avenue
Fairfield, CT 06432
United States

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