Odd-eighth avoidance as a defense against SOES bandits

Eugene Kandel; Leslie M. Marx

doi:10.1016/S0304-405X(98)00044-0

Odd-eighth avoidance as a defense against SOES bandits

Eugene Kandel^*, Leslie M. Marx

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

7 Scopus citations

Abstract

We model the behavior of Nasdaq momentum traders, also known as SOES bandits. We show, all things being equal, that the profitability of SOES bandits decreases in the bid-ask spread, but increases in the effective tick size. The patterns we observe in the data provide support for the model. We then discuss the plausibility of odd-eighth tick avoidance by market makers as a defense against SOES bandits.

Original language	English
Pages (from-to)	85-102
Number of pages	18
Journal	Journal of Financial Economics
Volume	51
Issue number	1
DOIs	https://doi.org/10.1016/S0304-405X(98)00044-0
State	Published - 1 Jan 1999

Bibliographical note

Funding Information:
We thank an anonymous referee, Michael Barclay, William Christie, Ludger Hentschel, Saul Lach, Paul Schultz, and G. William Schwert (the editior) for their comments. We thank Jon Lewellen for valuable research assistance. Kandel acknowledges financial support from the Krueger Center at Hebrew University.

Keywords

G10
L10
Nasdaq
Odd-eighth avoidance
SOES bandits
Tick size

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10.1016/S0304-405X(98)00044-0

Cite this

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abstract = "We model the behavior of Nasdaq momentum traders, also known as SOES bandits. We show, all things being equal, that the profitability of SOES bandits decreases in the bid-ask spread, but increases in the effective tick size. The patterns we observe in the data provide support for the model. We then discuss the plausibility of odd-eighth tick avoidance by market makers as a defense against SOES bandits.",

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Odd-eighth avoidance as a defense against SOES bandits

Abstract

Bibliographical note

Keywords

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