Robert A. Schwartz, David K. Whitcomb, Evidence on the Presence and Causes of Serial Correlation in Market Model Residuals, The Journal of Financial and Quantitative Analysis, Vol. 12, No. 2 (Jun., 1977), pp. 291-313

In a recent article in this Journal, Amir Barnea [1] proposes a criterion for assessing the market-making efficiency of New York Stock Exchange specialists. The appealing aspects of Barnea's method are that it uses publicly available data (common stock prices) and operates on a variable of primary concern to investors, the variance of returns on common stock. The difficulty we see in applying his approach, however, is that Barnea's performance criterion can be sensitive to a number of factors in addition to any impact the specialist might have, and that effective specialist intervention might have either a positive or negative impact on the performance measure. Thus, his specialist ranking seems to be quite misleading, and his empirical findings appear to be amenable to a substantially different interpretation than that which he provides.

Kalman J. Cohen, Steven F. Maier, Robert A. Schwartz, David K. Whitcomb, Market Makers and the Market Spread: A Review of Recent Literature, The Journal of Financial and Quantitative Analysis, Vol. 14, No. 4, Proceedings of 14th Annual Conference of the Western Finance Association, June 21-23, 1979 (Nov., 1979), pp. 813-814+816-835