Of course, correlation does not imply causation
July 18, 2014 6:53 PM Subscribe
Early in 1994, Christie and Schultz published "Why do NASDAQ Market Makers Avoid Odd-Eighth Quotes?" noting that although the minimum price variation was an eighth of a dollar, the vast majority of quotes and executions occurred on quarters of a dollar. Later the same year, Christie, Harris, and Schultz published "Why did NASDAQ Market Makers Stop Avoiding Odd-Eighths Quotes?" with the following abstract: "On May 26 and 27, 1994 several national newspapers reported the findings of Christie and Schultz (1994) who cannot reject the hypothesis that market makers of active NASDAQ stocks implicitly colluded to maintain spreads of at least $0.25 by avoiding odd-eighth quotes. On May 27, dealers in Amgen, Cisco Systems, and Microsoft sharply increased their use of odd-eighth quotes, and mean inside and effective spreads fell nearly 50 percent. This pattern was repeated for Apple Computer the following trading day. Using individual dealer quotes for Apple and Microsoft, we find that virtually all dealers moved in unison to adopt odd-eighth quotes."
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