The impact of institutional- and individual-investor-oriented trading systems on the liquidity and volatility of Nasdaq stocks has been the subject of much controversy. Bid–ask spreads for the most actively traded Nasdaq stocks have increased sharply during the past decade. The widening of spreads is statistically explained by increases in institutional ownership and trading. In contrast, the evidence does not show that individual-oriented trading systems have been associated with adverse effects on liquidity, even though such effects have been alleged.
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Kothare et al. (1995) studied this question.
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