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The Declining Role of NASDAQ Market Makers

Authors

  • Jared Egginton

    Corresponding author
    1. Louisiana Tech University
    • Corresponding author: Department of Economics and Finance, College of Business, P.O. Box 10318, Louisiana Tech University, Ruston, LA 71272; Phone: (318) 257-3571; Fax: (318) 257-4253; E-mail: egginton@latech.edu.

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  • I would like to thank the editor, Robert Van Ness, and an anonymous referee for their helpful comments and suggestions.

Abstract

We compare the liquidity providing behavior of NASDAQ market makers in 2010 to their behavior in 2004. We examine how frequently market makers are at the inside quote, what market and stock specific factors influence market makers’ behavior, and the relation between market maker participation and intraday bid-ask spread patterns. We observe a decrease in the percent of the trading day dealers’ quote at the inside, a decline in the number of market makers, and a decrease in the influence market makers have on intraday spread patterns. The results suggest that the role of NASDAQ market makers declines over time.

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