and the Business Development Division of the Sydney Futures Exchange. THE INTRADAY BEHAVIOR OF MARKET DEPTH IN A COMPETITIVE DEALER MARKET: A NOTE

This paper is the first to examine the intraday behaviour of quoted depth in a competitive dealer market. In sharp contrast to previous research which focuses on specialist markets, quoted depth is lowest at the open of trading, plateaus around the middle of the day, and then dramatically increases in the final hours of trading, peaking at the close. This peak in quoted depth coincides with a narrowing in bid-ask spreads, and is contrary to intraday patterns documented for specialist markets. We conclude that the increase in depth and narrowing of bid-ask spreads at the close is driven by dealers rebalancing inventories to achieve target inventory levels in a competitive market. 2 1