Leases, Seats, and Spreads: The Determinants of the Returns to Leasing a NYSE Seat

We study the returns to leasing a New York Stock Exchange (NYSE) seat during 1995–2005 and find that these returns are a weighted average of past leasing returns and a set of fundamental factors such as average NYSE quoted spreads, the dollar value of NYSE trading volume, and the return on the overall stock market. Our partial adjustment model explains 70–80% of the variation in leasing returns and 80–85% of this explanatory power is attributable to a simple AR(1) process. Quoted spreads, trading volume, and stock market returns are all significant factors that positively affect leasing returns, albeit to a lesser extent than past returns to leasing. In addition, NYSE seat lessors rely more heavily on past values of these fundamental factors rather than coincident or forward-looking values of spreads, volume, returns, etc. This is in contrast to previous results on exchange seat prices which find that only unexpected changes in fundamental factors such as those noted above have a significant impact on exchange seat prices. In addition, unlike previous research on seat prices, which report that these prices follow a random walk, we do not find that leasing returns behave in this manner.