The degree of price resolution and equity trading costs

Research output: Contribution to journalArticle

47 Citations (Scopus)

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 languageEnglish (US)
Pages (from-to)9-34
Number of pages26
JournalJournal of Financial Economics
Volume45
Issue number1
StatePublished - Jul 1997

Fingerprint

Trading costs
Equity
Execution costs
Nasdaq
New York Stock Exchange
Information content
Private information
Transaction price
Market making
Proportion
Costs

Keywords

  • Nasdaq market
  • Quote rounding
  • Trading costs

ASJC Scopus subject areas

  • Accounting
  • Strategy and Management
  • Economics and Econometrics
  • Finance

Cite this

The degree of price resolution and equity trading costs. / Bessembinder, Hendrik.

In: Journal of Financial Economics, Vol. 45, No. 1, 07.1997, p. 9-34.

Research output: Contribution to journalArticle

@article{87fe9de3be964eddb95884a4f23858d4,
title = "The degree of price resolution and equity trading costs",
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.",
keywords = "Nasdaq market, Quote rounding, Trading costs",
author = "Hendrik Bessembinder",
year = "1997",
month = "7",
language = "English (US)",
volume = "45",
pages = "9--34",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "1",

}

TY - JOUR

T1 - The degree of price resolution and equity trading costs

AU - Bessembinder, Hendrik

PY - 1997/7

Y1 - 1997/7

N2 - 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.

AB - 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.

KW - Nasdaq market

KW - Quote rounding

KW - Trading costs

UR - http://www.scopus.com/inward/record.url?scp=0031185235&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0031185235&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:0031185235

VL - 45

SP - 9

EP - 34

JO - Journal of Financial Economics

JF - Journal of Financial Economics

SN - 0304-405X

IS - 1

ER -