TY - JOUR
T1 - Geographic proximity and price discovery
T2 - Evidence from NASDAQ
AU - Anand, Amber
AU - Gatchev, Vladimir A.
AU - Madureira, Leonardo
AU - Pirinsky, Christo A.
AU - Underwood, Shane
N1 - Funding Information:
For helpful comments, we thank Vladimir Atanasov, Tom Barkley, Valentin Dimitrov, Chitru Fernando, Paul Irvine, Paul Spindt, Kumar Venkataraman, Ingrid Werner (our discussant at the 2008 Western Finance Association meetings), and seminar participants at Barclays Global Investors, Case Western Reserve University, George Washington University, University of Nevada, Las Vegas, the 2008 Western Finance Association, and the 2009 FIRS meetings. We thank Stephen Letzler from the National Securities Clearing Corporation (NSCC) for providing us with the historic directories of NSCC. Part of this work was completed while Underwood was at Rice University, and was supported in part by the Rice Computational Research Cluster funded by the National Science Foundation under Grant CNS-0421109, and a partnership between Rice University, AMD, and Cray. The paper combines two previous papers circulated under the titles “Geography and Equity Market Making” and “Geographic Proximity and Price Discovery: Evidence from NASDAQ.”
Copyright:
Copyright 2011 Elsevier B.V., All rights reserved.
PY - 2011/5
Y1 - 2011/5
N2 - 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.
AB - 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.
KW - G10
KW - G14
KW - G20
KW - Geographic location
KW - Market microstructure
KW - Price discovery
KW - Quote quality
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U2 - 10.1016/j.finmar.2010.11.001
DO - 10.1016/j.finmar.2010.11.001
M3 - Article
AN - SCOPUS:78650787505
SN - 1386-4181
VL - 14
SP - 193
EP - 226
JO - Journal of Financial Markets
JF - Journal of Financial Markets
IS - 2
ER -