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Automation, speed, and stock market quality: The NYSE's Hybrid

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  • Hendershott, Terrence
  • Moulton, Pamela C.
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    Abstract

    Automation and trading speed are increasingly important aspects of competition among financial markets. Yet we know little about how changing a market's automation and speed affects the cost of immediacy and price discovery, two key dimensions of market quality. At the end of 2006 the New York Stock Exchange introduced its Hybrid Market, increasing automation and reducing the execution time for market orders from 10 seconds to less than one second. We find that the change raises the cost of immediacy (bid-ask spreads) because of increased adverse selection and reduces the noise in prices, making prices more efficient.

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    File URL: http://www.sciencedirect.com/science/article/pii/S138641811100005X
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    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 14 (2011)
    Issue (Month): 4 (November)
    Pages: 568-604

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    Handle: RePEc:eee:finmar:v:14:y:2011:i:4:p:568-604
    Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

    Keywords: Automation Liquidity Speed Transparency Latency Adverse selection;

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