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Trading Costs And Quote Clustering On The Nyse And Nasdaq After Decimalization

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  • Kee H. Chung
  • Bonnie F. Van Ness
  • Robert A. Van Ness
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    Abstract

    We examine execution costs and quote clustering on the New York Stock Exchange (NYSE) and NASDAQ using 517 matching pairs of stocks after decimalization. We find that the mean spread of NASDAQ stocks is greater than the mean spread of NYSE stocks when spreads are equally weighted across stocks, and the difference is greater for smaller stocks. In contrast, the mean NASDAQ spread is narrower than the mean NYSE spread when spreads are volume weighted, and the difference is statistically significant for large stocks. Both NYSE and NASDAQ stocks exhibit high degrees of quote clustering on nickels and dimes, and quote clustering has a significant effect on spreads in both markets. 2004 The Southern Finance Association and the Southwestern Finance Association.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 27 (2004)
    Issue (Month): 3 ()
    Pages: 309-328

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    Handle: RePEc:bla:jfnres:v:27:y:2004:i:3:p:309-328

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    Cited by:
    1. Ashton, John K. & Hudson, Robert S., 2008. "Interest rate clustering in UK financial services markets," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(7), pages 1393-1403, July.
    2. Meng, Lei & Verousis, Thanos & ap Gwilym, Owain, 2013. "A substitution effect between price clustering and size clustering in credit default swaps," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 24(C), pages 139-152.
    3. Ohta, Wataru, 2006. "An analysis of intraday patterns in price clustering on the Tokyo Stock Exchange," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(3), pages 1023-1039, March.
    4. Chakravarty, Sugato & Panchapagesan, Venkatesh & Wood, Robert A., 2005. "Did decimalization hurt institutional investors?," Journal of Financial Markets, Elsevier, Elsevier, vol. 8(4), pages 400-420, November.
    5. ap Gwilym, Owain & Verousis, Thanos, 2010. "Price clustering and underpricing in the IPO aftermarket," International Review of Financial Analysis, Elsevier, Elsevier, vol. 19(2), pages 89-97, March.
    6. Vuorenmaa, Tommi A., 2008. "Decimalization, Realized Volatility, and Market Microstructure Noise," MPRA Paper 8692, University Library of Munich, Germany.
    7. Bidisha Chakrabarty & Zhaohui Han & Konstantin Tyurin & Xiaoyong Zheng, 2006. "A Competing Risk Analysis of Executions and Cancellations in a Limit Order Market," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2006-015, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    8. Mathew, Prem G. & Michayluk, David & Kofman, Paul, 2007. "Are foreign issuers complying with Regulation Fair Disclosure?," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 17(3), pages 246-260, July.
    9. Salomonsson, Marcus, 2009. "Introducing a spread into the Kyle model," Working Paper Series in Economics and Finance 713, Stockholm School of Economics.

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