Geographic proximity and price discovery: Evidence from NASDAQ

Amber Anand, Vladimir A. Gatchev, Leonardo Madureira, Christo A. Pirinsky, Shane Underwood

Research output: Contribution to journalArticlepeer-review

24 Scopus citations


We use the NASDAQ market making context to study the role of geographic proximity in the price discovery of a firm's stock. We show that market makers closer to the firm's headquarters spend more time at the inside bid and ask quotes, initiate larger changes in the quotes, and account for greater information share when compared to non-local market makers. Examining a sample of relocating firms, we also find that market makers moving farther away from the firm after relocation experience a reduction in their contributions to price discovery. Our results suggest that some (local) market makers possess superior information relative to other (non-local) market makers and they trade strategically on this information, a finding that challenges the traditional assumptions in market microstructure theory.

Original languageEnglish (US)
Pages (from-to)193-226
Number of pages34
JournalJournal of Financial Markets
Issue number2
StatePublished - May 2011


  • G10
  • G14
  • G20
  • Geographic location
  • Market microstructure
  • Price discovery
  • Quote quality

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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