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The authors use the Nasdaq market making context to study the role of geographic proximity in the price discovery of a firm's stock. They show that market makers closer to the firm's headquarters spend more time at the inside bid and ask quotes, initiate larger changes in the quotes, and account for greater information share when compared to non-local market makers. Examining a sample of relocating firms, they also find that market makers moving farther away from the firm after relocation experience a reduction in their contributions to price discovery. They provide evidence that the stronger imprint of local market makers on prices is due to their information advantage relative to non-local market makers.
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