Title

Does Internalization Diminish the Impact of Quote Aggressiveness on Dealer Market Share

Document Type

Article

Publication Date

1-2006

Publication Source

Journal of Financial Intermediation

Volume

15

Issue

1

Inclusive pages

108-131

DOI

doi:10.1016/j.jfi.2004.10.002

Publisher

Elsevier

ISBN/ISSN

10429573

Peer Reviewed

yes

Abstract

We analyze data provided by NASDAQ to examine how quote aggressiveness affects dealer market share and whether the practice of internalization mitigates the impact of quote aggressiveness. Our empirical results show that although internalization does not reduce the impact of price aggressiveness on dealer market share, it mitigates the impact of size aggressiveness. This result suggests that although internalization may not affect the dealer's incentive to post aggressive prices, it may reduce the incentive to post large depths. We find that aggressive quotes are more effective in raising dealer market share in stocks with a less competitive (more concentrated) market structure. Our results also show that the effective spread is wider (narrower) for stocks with a smaller price (size) elasticity of dealer market share.

Keywords

Dealer market share; Market concentration; Herfindahl-index; Internalization; Quote aggressiveness; Decimalization

Disciplines

Accounting

 
 

Link to Original Published Item

http://dx.doi.org/10.1016/j.jfi.2004.10.002