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Order preferencing and market quality on NASDAQ before and after decimalization

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  • Chung, Kee H.
  • Chuwonganant, Chairat
  • McCormick, D. Timothy
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 71 (2004)
    Issue (Month): 3 (March)
    Pages: 581-612

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    Handle: RePEc:eee:jfinec:v:71:y:2004:i:3:p:581-612

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    Web page: http://www.elsevier.com/locate/inca/505576

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    References

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    1. David C. Porter & Daniel G. Weaver, 1997. "Tick Size and Market Quality," Financial Management, Financial Management Association, Financial Management Association, vol. 26(4), Winter.
    2. Blume, Marshall E & Goldstein, Michael A, 1997. " Quotes, Order Flow, and Price Discovery," Journal of Finance, American Finance Association, vol. 52(1), pages 221-44, March.
    3. Eugene Kandel & Leslie M. Marx, 1999. "Payments for Order Flow on Nasdaq," Journal of Finance, American Finance Association, vol. 54(1), pages 35-66, 02.
    4. McInish, Thomas H & Wood, Robert A, 1992. " An Analysis of Intraday Patterns in Bid/Ask Spreads for NYSE Stocks," Journal of Finance, American Finance Association, vol. 47(2), pages 753-64, June.
    5. Bacidore, Jeffrey M. & Battalio, Robert H. & Jennings, Robert H., 2002. "Depth improvement and adjusted price improvement on the New York stock exchange," Journal of Financial Markets, Elsevier, vol. 5(2), pages 169-195, April.
    6. Godek, Paul E., 1996. "Why Nasdaq market makers avoid odd-eighth quotes," Journal of Financial Economics, Elsevier, Elsevier, vol. 41(3), pages 465-474, July.
    7. Oliver Hansch & Narayan Y. Naik & S. Viswanathan, 1999. "Preferencing, Internalization, Best Execution, and Dealer Profits," Journal of Finance, American Finance Association, vol. 54(5), pages 1799-1828, October.
    8. Battalio, Robert & Jennings, Robert & Selway, Jamie, 2001. "The potential for clientele pricing when making markets in financial securities," Journal of Financial Markets, Elsevier, vol. 4(1), pages 85-112, January.
    9. Kandel, Eugene & Marx, Leslie M., 1997. "Nasdaq market structure and spread patterns," Journal of Financial Economics, Elsevier, Elsevier, vol. 45(1), pages 61-89, July.
    10. Lucy F. Ackert & Bryan K. Church, 1999. "Bid-Ask Spreads in Multiple Dealer Settings: Some Experimental Evidence," Financial Management, Financial Management Association, Financial Management Association, vol. 28(1), Spring.
    11. Bloomfield, Robert & O'Hara, Maureen, 1998. "Does order preferencing matter?," Journal of Financial Economics, Elsevier, Elsevier, vol. 50(1), pages 3-37, October.
    12. Kluger, Brian D. & Wyatt, Steve B., 2002. "Preferencing, Internalization of Order Flow, and Tacit Collusion: Evidence from Experiments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(03), pages 449-469, September.
    13. Bessembinder, Hendrik, 2003. "Trade Execution Costs and Market Quality after Decimalization," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(04), pages 747-777, December.
    14. Bessembinder, Hendrik, 2003. "Quote-based competition and trade execution costs in NYSE-listed stocks," Journal of Financial Economics, Elsevier, Elsevier, vol. 70(3), pages 385-422, December.
    15. Matthew Rhodes-Kropf, 2005. "Price Improvement in Dealership Markets," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1137-1172, July.
    16. Chung, Kee H. & Van Ness, Bonnie F. & Van Ness, Robert A., 2001. "Can the Treatment of Limit Orders Reconcile the Differences in Trading Costs between the Differences in Trading Costs between NYSE and Nasdaq Issues?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(02), pages 267-286, June.
    17. Klock, Mark & McCormick, D Timothy, 1999. "The Impact of Market Maker Competition on Nasdaq Spreads," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 34(4), pages 55-73, November.
    18. Bessembinder, Hendrik, 1999. "Trade Execution Costs on NASDAQ and the NYSE: A Post-Reform Comparison," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(03), pages 387-407, September.
    19. Seppi, Duane J, 1990. " Equilibrium Block Trading and Asymmetric Information," Journal of Finance, American Finance Association, vol. 45(1), pages 73-94, March.
    20. Roger D. Huang, 2002. "The Quality of ECN and Nasdaq Market Maker Quotes," Journal of Finance, American Finance Association, vol. 57(3), pages 1285-1319, 06.
    21. Battalio, Robert & Greene, Jason & Jennings, Robert, 1997. "Do Competing Specialists and Preferencing Dealers Affect Market Quality?," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 969-93.
    22. Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June.
    23. Mark A. Peterson & Erik R. Sirri, 2003. "Order Preferencing and Market Quality on U.S. Equity Exchanges," Review of Financial Studies, Society for Financial Studies, vol. 16(2), pages 385-415.
    24. Huang, Roger D. & Stoll, Hans R., 1996. "Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE," Journal of Financial Economics, Elsevier, Elsevier, vol. 41(3), pages 313-357, July.
    25. Robert Battalio & Robert Jennings & Jamie Selway, 2001. "The Relationship Among Market-Making Revenue, Payment for Order Flow, and Trading Costs for Market Orders," Journal of Financial Services Research, Springer, vol. 19(1), pages 39-56, February.
    26. Hans R. Stoll, 2000. "Presidential Address: Friction," Journal of Finance, American Finance Association, vol. 55(4), pages 1479-1514, 08.
    27. Chordia, Tarun & Subrahmanyam, Avanidhar, 1995. "Market Making, the Tick Size, and Payment-for-Order Flow: Theory and Evidence," The Journal of Business, University of Chicago Press, vol. 68(4), pages 543-75, October.
    28. Benveniste, Lawrence M. & Marcus, Alan J. & Wilhelm, William J., 1992. "What's special about the specialist?," Journal of Financial Economics, Elsevier, Elsevier, vol. 32(1), pages 61-86, August.
    29. Dutta, Prajit K & Madhavan, Ananth, 1997. " Competition and Collusion in Dealer Markets," Journal of Finance, American Finance Association, vol. 52(1), pages 245-76, March.
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    Citations

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    Cited by:
    1. Chung, Kee H. & Chuwonganant, Chairat & Jiang, Jing, 2008. "The dynamics of quote adjustments," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2390-2400, November.
    2. Kee Chung & Jangkoo Kang & Joon-Seok Kim, 2011. "Tick size, market structure, and market quality," Review of Quantitative Finance and Accounting, Springer, vol. 36(1), pages 57-81, January.
    3. Kedia, Simi & Zhou, Xing, 2011. "Local market makers, liquidity and market quality," Journal of Financial Markets, Elsevier, vol. 14(4), pages 540-567, November.
    4. Garvey, Ryan & Wu, Fei, 2011. "Information, speed vs. cost trade-offs, and order routing decisions in U.S. equity markets," Journal of Empirical Finance, Elsevier, Elsevier, vol. 18(3), pages 408-422, June.
    5. Hendershott, Terrence & Jones, Charles M., 2005. "Trade-through prohibitions and market quality," Journal of Financial Markets, Elsevier, vol. 8(1), pages 1-23, February.
    6. He, Chen & Odders-White, Elizabeth & Ready, Mark J., 2006. "The impact of preferencing on execution quality," Journal of Financial Markets, Elsevier, vol. 9(3), pages 246-273, August.
    7. Chelley-Steeley, Patricia & Park, Keebong, 2010. "The adverse selection component of exchange traded funds," International Review of Financial Analysis, Elsevier, vol. 19(1), pages 65-76, January.
    8. Shynkevich, Andrei, 2012. "Short-term predictability of equity returns along two style dimensions," Journal of Empirical Finance, Elsevier, Elsevier, vol. 19(5), pages 675-685.
    9. Chung, Kee H. & Chuwonganant, Chairat & McCormick, D. Timothy, 2006. "Does internalization diminish the impact of quote aggressiveness on dealer market share?," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 15(1), pages 108-131, January.
    10. Stoll, Hans R. & Schenzler, Christoph, 2006. "Trades outside the quotes: Reporting delay, trading option, or trade size?," Journal of Financial Economics, Elsevier, Elsevier, vol. 79(3), pages 615-653, March.
    11. Menkveld, Albert J. & Sarkar, Asani & van der Wel, Michel, 2008. "Customer flow, intermediaries, and the discovery of the equilibrium riskfree rate," CFS Working Paper Series 2008/47, Center for Financial Studies (CFS).
    12. Albert J. Menkveld & Asani Sarkar & Michel van der Wel, 2007. "Macro News, Riskfree Rates, and the Intermediary," Tinbergen Institute Discussion Papers 07-086/2, Tinbergen Institute.
    13. Chung, Kee H. & Chuwonganant, Chairat, 2007. "Quote-based competition, market share, and execution quality in NASDAQ-listed securities," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2770-2795, September.
    14. Li, Mingsheng & McCormick, Timothy & Zhao, Xin, 2005. "Order imbalance and liquidity supply: Evidence from the bubble burst of Nasdaq stocks," Journal of Empirical Finance, Elsevier, Elsevier, vol. 12(4), pages 533-555, September.
    15. Kaun Y. Lee & Kee H. Chung, 2009. "Information-Based Trading and Price Improvement," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5-6), pages 754-773.
    16. Sabrina Buti & Barbara Rindi & Yuanji Wen & Ingrid M. Werner, 2013. "Tick Size Regulation and Sub-Penny Trading," Working Papers 492, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    17. Goldstein, Michael A. & Shkilko, Andriy V. & Van Ness, Bonnie F. & Van Ness, Robert A., 2008. "Competition in the market for NASDAQ securities," Journal of Financial Markets, Elsevier, vol. 11(2), pages 113-143, May.
    18. Albert J. Menkveld & Asani Sarkar & Michel van der Wel, 2007. "Macro News, Riskfree Rates, and the Intermediary," Tinbergen Institute Discussion Papers 07-086/2, Tinbergen Institute.
    19. Chung, Kee H. & Kim, Youngsoo, 2005. "The dynamics of dealer markets and trading costs," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 3041-3059, December.
    20. Lescourret, Laurence & Robert, Christian Y., 2006. "Preferencing, internalization and inventory position," ESSEC Working Papers DR 06017, ESSEC Research Center, ESSEC Business School.
    21. Albert J. Menkveld & Asani Sarkar & Michel van der Wel, 2007. "Macro news, risk-free rates, and the intermediary: customer orders for thirty-year Treasury futures," Staff Reports 307, Federal Reserve Bank of New York.
    22. Anand, Amber & Gatchev, Vladimir A. & Madureira, Leonardo & Pirinsky, Christo A. & Underwood, Shane, 2011. "Geographic proximity and price discovery: Evidence from NASDAQ," Journal of Financial Markets, Elsevier, vol. 14(2), pages 193-226, May.
    23. Lescourret, Laurence & Robert, Christian Y., 2011. "Transparency matters: Price formation in the presence of order preferencing," Journal of Financial Markets, Elsevier, vol. 14(2), pages 227-258, May.
    24. Kee Chung & Chairat Chuwonganant & D. McCormick, 2006. "Order preferencing, adverse-selection costs, and the probability of information-based trading," Review of Quantitative Finance and Accounting, Springer, vol. 27(4), pages 343-364, December.
    25. Michael Goldstein & Andriy Shkilko & Bonnie Ness & Robert Ness, 2010. "Inter-market competition for NYSE-listed securities under decimals," Review of Quantitative Finance and Accounting, Springer, vol. 35(4), pages 371-391, November.

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