Nyse specialists participation in the posted quotes

Using 2001 NYSE system order data in the decimal pricing environment, we analyze how the specialists react to the changes in market variables while making participation decisions to the posted quotes. We analyze the specialists' decision to undercut or add depth to the limit order book. We distinguish bid and ask side of the quotes. We find that the primary factors that affect the participation strategy of the specialists to the current posted quotes are the changes in the best prices and depths on the limit order book since the previous quotes. In addition, specialists participate to the posted quotes more for low-volume stocks. Unlike some previous studies, we find significant inventory effects providing some evidence that the specialists actively manage their inventories.

NYSE Specialists ,

Dealer Trading ,

Market Makers ,

Limit Order Book ,

Posted Quotes ,