Christie and Schultz (1994), (Journal of Finance, 49, 1813-1840) find that market makers in many active Nasdaq stocks avoid odd-eighth quotes. This paper studies 67 (58) Nasdaq stocks whose market makers initiate (withdraw) odd-eighth quotes. These regime shifts are often completed within the span of a day, and coincide with dramatic changes in dollar, percentage and effective spreads. In most cases, we are unable to identify comparable changes in the costs of making markets. We do identify long-run changes in average prices that may provide a partial explanation. However, we also find that these patterns are not shared by stocks traded in auction markets. (C) 1999 Elsevier Science S.A. All rights reserved.
