Beschreibung:
<jats:title>Abstract</jats:title><jats:p>We model trading in a competitive securities market where informed traders and liquidity traders transact with dealers. The dealers' entire published quote is modeled: bid‐ask prices and the number of shares the dealer is willing to buy/sell at these prices (i.e., size quotes). We argue that size quotes are a more informative indicator of market liquidity than the bid‐ask spread's adverse‐selection component. Moreover, the size quotes reveal several market characteristics that cannot be inferred from the bid‐ask spread's adverse‐selection component alone. The model generates a number of empirically testable predictions that clarify certain key elements of market liquidity.</jats:p>