TY - JOUR
T1 - Order imbalance and liquidity supply
T2 - Evidence from the bubble burst of Nasdaq stocks
AU - Li, Mingsheng
AU - McCormick, Timothy
AU - Zhao, Xin
PY - 2005/9
Y1 - 2005/9
N2 - In this study we analyze the effect of order imbalance on the quotation behavior of Nasdaq market makers. We find that Nasdaq market makers use both price and quantity quotes when dealing with order imbalances. However, order imbalance affects only price movement, not spreads. We also find that Nasdaq market makers quote more shares and compete more intensively on bid-side (ask-side) when public sells (buys) exceed public buys (sells). These suggest that market makers increase liquidity supply when order imbalances exist. More interestingly, we show that both market conditions and price movements affect investors' trading behavior.
AB - In this study we analyze the effect of order imbalance on the quotation behavior of Nasdaq market makers. We find that Nasdaq market makers use both price and quantity quotes when dealing with order imbalances. However, order imbalance affects only price movement, not spreads. We also find that Nasdaq market makers quote more shares and compete more intensively on bid-side (ask-side) when public sells (buys) exceed public buys (sells). These suggest that market makers increase liquidity supply when order imbalances exist. More interestingly, we show that both market conditions and price movements affect investors' trading behavior.
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U2 - 10.1016/j.jempfin.2004.11.001
DO - 10.1016/j.jempfin.2004.11.001
M3 - Article
AN - SCOPUS:26844502861
SN - 0927-5398
VL - 12
SP - 533
EP - 555
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
IS - 4
ER -