Abstract
This paper investigates relations between trade execution costs and price-rounding practices for NYSE- and Nasdaq-listed firms. Execution costs on each exchange vary positively with the proportion of transaction prices and quotations rounded to even- eighths of a dollar, both cross-sectionally and intertemporally. After allowing for variation in market-making costs attributable to the private information content of trades, there is a strong positive relation between execution costs and price-rounding frequencies for Nasdaq issues but not for NYSE issues. These findings are consistent with the assertion that price-rounding conventions effectively increase trade execution costs on Nasdaq.
Original language | English (US) |
---|---|
Pages (from-to) | 9-34 |
Number of pages | 26 |
Journal | Journal of Financial Economics |
Volume | 45 |
Issue number | 1 |
DOIs | |
State | Published - Jul 1997 |
Keywords
- Nasdaq market
- Quote rounding
- Trading costs
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management