Abstract
This study examines quotations, order routing, and trade execution costs for seven markets that compete for orders in large-capitalization NYSE-listed stocks. The competitiveness of quote updates from each market varies with measures of the profitability of attracting additional order and with volatility and inventory measures. The probability of a trade executing on each market increases when the market posts competitive quotes. Execution costs for non-NYSE trades when the local market posts competitive (non-competitive) quotes are virtually the same (substantially exceed) costs for matched NYSE trades. Collectively, these results imply a significant degree of quote-based competition for order flow and are consistent with off-NYSE liquidity providers using competitive quotations to signal when they are prepared to give better-than-normal trade executions.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 385-422 |
| Number of pages | 38 |
| Journal | Journal of Financial Economics |
| Volume | 70 |
| Issue number | 3 |
| DOIs | |
| State | Published - Dec 1 2003 |
| Externally published | Yes |
Keywords
- Competition for order flow
- Quotation strategies
- Trading costs
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management