Dealer Bid-Ask Quotes and Transaction Prices: An Empirical Study of Some AMEX Options

High-frequency trading in a limit order book

“…In their model, the authors specify a 'true' price for the asset, and derive optimal bid and ask quotes around this price, to account for the effect of the inventory. This inventory effect was found to be significant in an empirical study of AMEX Options by Ho and Macris [5]. In another paper by Ho and Stoll [7], the problem of dealers under competition is analyzed and the bid and ask prices are shown to be related to the reservation (or indifference) prices of the agents.…”

Two months in the life of several gilt-edged market makers on the London Stock Exchange

“…While Proudman (1995) follows Hasbrouck's suggestion, we will consider a general structural model of the price process (Lyons, 1995), which encompasses several others (Ho and Macris, 1984;Roll, 1984;Glosten and Harris, 1988;Viswanathan, 1990 andSmidt, 1991) and takes account of the decentralised organisation of the UK gilt market. As we proceed with the description of the structural model, the specific reasons why we prefer this to a VAR model will be clarified.…”

Changes in trading volume and return volatility associated with S&P 500 index additions and deletions

“…They find that number of transactions is the most important measure of trading activity that explains volatility changes although size of trade is also an influencing factor. Ho and Macris (1984) suggest that the market makers adjust bid-ask spreads when they face large order flows. Market makers, in response to liquidity constraints, often carry additional "inventory" to cope with possible order imbalances, resulting in suboptimal inventory holdings.…”