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Dealer attention, the speed of quote adjustment to information, and net dealer revenue

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  • Boulatov, Alex
  • Hatch, Brian C.
  • Johnson, Shane A.
  • Lei, Adam Y.C.

Abstract

Using trade and quote data from the NYSE, we examine the relation between dealer attention, dealer revenue, and the probability of informed trade. We find that dealer revenue net of losses to better-informed traders in NYSE stocks is positively related to the speed at which quotes adjust to full information levels. The speed of quote adjustment is faster for stocks with greater dealer attention, as measured by a stock's relative prominence at its post and panel location on the NYSE floor. The level of dealer attention in turn is positively related to a stock's probability of information-based trading. The results are consistent with a theoretical model we derive in which dealers trade multiple securities and must optimally allocate their limited attention to monitoring order flow to minimize losses to better-informed traders.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 8 (August)
Pages: 1531-1542

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:8:p:1531-1542

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Dealers Market design Limited attention Market quality Trading costs;

References

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Citations

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Cited by:
  1. Chakrabarty, Bidisha & Moulton, Pamela C., 2012. "Earnings announcements and attention constraints: The role of market design," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 612-634.
  2. Korczak, Piotr & Phylaktis, Kate, 2010. "Related securities and price discovery: Evidence from NYSE-listed Non-U.S. stocks," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 566-584, September.
  3. Fong, Kingsley Y.L. & Liu, Wai-Man, 2010. "Limit order revisions," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1873-1885, August.
  4. Cullen, Grant & Gasbarro, Dominic & Monroe, Gary S., 2010. "Mutual fund trades and the value of contradictory private information," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 378-387, February.

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