Quote Revisions and The Quoted Size: An Empirical Analysis

We examine the importance of the size quoted by the specialist in the adjustment of prices. The quoted size is the maximum trade size for which the posted quotes are guaranteed. We find that the impact of trades on subsequent quote revisions depends significantly on whether the trade size exceeds the quoted size. Although larger trades are followed by larger quote revisions, most of the variation in quote revisions is explained by whether the trade size exceeds the quoted size. Once it does, further increases in the trade size have no effect. Our results also indicate that only a fraction of trades move the quotes.