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Liquidity Provision and the Organizational Form of NYSE Specialist Firms

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Author Info

  • Jay F. Coughenour

    (University of Delaware,)

  • Daniel N. Deli

    (Arizona State University)

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    Abstract

    We examine the influence of NYSE specialist firm organizational form on the nature of liquidity provision. We compare closely held firms whose specialists provide liquidity with their own capital to widely held firms whose specialists provide liquidity with diffusely owned capital. We argue that specialists using their own capital have a greater incentive and ability to reduce adverse selection costs, but face a greater cost of capital. Differences in the proportion of spreads due to adverse selection costs, large trade frequency, the sensitivity between depth and spreads, and price stabilization support this argument. Copyright The American Finance Association 2002.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 57 (2002)
    Issue (Month): 2 (04)
    Pages: 841-869

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    Handle: RePEc:bla:jfinan:v:57:y:2002:i:2:p:841-869

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    Cited by:
    1. Coughenour, Jay F. & Saad, Mohsen M., 2004. "Common market makers and commonality in liquidity," Journal of Financial Economics, Elsevier, vol. 73(1), pages 37-69, July.
    2. Patricia C. Mosser & Joseph Tracy & Joshua Wright, 2013. "The capital structure and governance of a mortgage securitization utility," Staff Reports 644, Federal Reserve Bank of New York.
    3. Buti, Sabrina, 2007. "A Challenger to the Limit Order Book: The NYSE Specialist," SIFR Research Report Series 55, Institute for Financial Research.
    4. Hatch, Brian C. & Johnson, Shane A., 2002. "The impact of specialist firm acquisitions on market quality," Journal of Financial Economics, Elsevier, vol. 66(1), pages 139-167, October.
    5. Fabrice Roth, 2012. "Crise et r├ęgulation des march├ęs financiers : Quel impact sur les formes mutuelles dans l'assurance ?," Working Papers halshs-00692342, HAL.
    6. Boulatov, Alex & Hatch, Brian C. & Johnson, Shane A. & Lei, Adam Y.C., 2009. "Dealer attention, the speed of quote adjustment to information, and net dealer revenue," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1531-1542, August.
    7. Shane A. Corwin & Jay F. Coughenour, 2008. "Limited Attention and the Allocation of Effort in Securities Trading," Journal of Finance, American Finance Association, vol. 63(6), pages 3031-3067, December.
    8. Anand, Amber & Chakravarty, Sugato & Chuwonganant, Chairat, 2009. "Cleaning house: Stock reassignments on the NYSE," Journal of Financial Markets, Elsevier, vol. 12(4), pages 727-753, November.

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