Regulatory and Legal Pressures and the Costs of NASDAQ Trading
Posted: 19 Dec 1998
Date Written: December 1998
Abstract
The Nasdaq market came under intense pressure from regulators and class-action lawsuits following allegations of tacit collusion by Christie and Schultz (1994). This paper examines the changes in tranactions costs on Nasdaq over January 1993 through June 1996 using 16 million trades in 30 stocks. Effective spreads cannot be estimated during 1995 and 1996 because time-stamps of trades and quotes cannot be matched. However, the autocovariance spread estimator of Roll (1984) works well with intraday data over this period. Using this spread estimator, I find that trading costs declined significantly for 29 of 30 stocks over 1993-1996. Moreover, trading costs fell for trades of all sizes.
JEL Classification: G10, G18, C40
Suggested Citation: Suggested Citation