Enhancement of primary dealer system and primary market will be furthered via introduction of more stringent criteria such as narrower bid-asked spread
requirement, better bidding performance and more intra-exchange trading activities.
"I think the clearest case for [caring] is the collapse of the bid-asked spread
," Whitcomb declares.
These rules for handling open limit orders on ex-days are sufficient to create ex-day abnormal returns under the assumption that the closing ex-dividend day bid-asked spread is constrained by the good-till-canceled limit orders.
Each is equidistant from |P.sub.c~; i.e., P|B.sub.c~ + X = P|A.sub.c~ - X = |P.sub.c~, where X is one-half of the bid-asked spread. D denotes the cash dividend per share.
Hagerman, 1974, "Determinants of Bid-Asked Spreads
in the Over-the-Counter Market," Journal of Financial Economics 1, 353-364.
Many financial markets turned illiquid, with wider bid-asked spreads and heightened price volatility, and issuance was disrupted in some private securities markets.
Our economy has weathered the disturbances with remarkable resilience, though some yield and bid-asked spreads still reflect a hesitancy on the part of market participants to take on risk.
"Determinants of Bid-Asked Spreads
in the Over-the-Counter Market." Journal of Financial Economics 1:353-64.
The government securities market spans a wide range of securities, from the extremely liquid, so-called on-the-run Treasury securities, for which bid-asked spreads
are razor-thin, to the more exotic and sometimes tailor-made hybrids and derivatives, for which a fair markup could be sizable.