Market Structure and the Intraday Pattern of Bid-Ask Spreads for NASDAQ Securities

This article examines the intraday pattern of bid-ask spreads among NASDAQ stocks. We find that spreads are relatively stable throughout the day but narrow significantly near the close. This contrasts with the U-shaped pattern for NYSE stocks reported by Brock and Kleidon and McInish and Wood. We attribute these divergent patterns to structural differences between specialist and dealer markets. The wider spreads for NYSE stocks near periods of market closure may reflect the market power of specialists. The decline in spreads near the close for NASDAQ stocks is consistent with inventory control by individual dealers.