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The Economic Effects of NASDAQ: Some Preliminary Results

Published online by Cambridge University Press:  19 October 2009

Anthony M. Santomero
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Extract

On February 1, 1971, the National Association of Security Dealers instituted an automatic quoting system for over-the-counter stocks. Heralded as a major advance in the elimination of market imperfections, the National Association of Security Dealers Automatic Quote System (NASDAQ) allowed bidand- ask prices of different firms in this geographically dispersed market to be centralized. Essentially its operation allowed individual “houses” to obtain the various bid-and-ask prices of market makers for a given unlisted security.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 1 , January 1974 , pp. 13 - 24
Copyright
Copyright © School of Business Administration, University of Washington 1974

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References

1 See Miller, M. H. and Modigliani, F., “Dividend Policy, Growth, and the Valuation of Shares,” Journal of Business (October 1961), p. 412Google Scholar.

2 Intrinsic value is defined to mean the present value of the discounted expected returns to the security in question.

3 See Demsetz, H., “The Cost of Transacting,” Quarterly Journal of Economics (February 1968), pp. 33–53CrossRefGoogle Scholar, and see Tinic, S. M., and West, R. R., “Competition and the Pricing of Dealer Service in the Over-the-Counter Stock Market,” Journal of Financial and Quantitative Analysis (June 1972), pp. 1707–1727CrossRefGoogle Scholar.

4 See Demsetz, “Cost of Transacting,” p. 48.

5 Tinic and West, “Competition and Pricing.”

6 It should be recalled that the OTC index only began after the institution of NASDAQ, therefore, precluding it from use.

7 See Tinic and West, “Competition and Pricing,” pp. 1711–1715.