Advertising for Liquidity on the New York Stock Exchange
Robert H. Jennings
Indiana University Bloomington - Kelley School of Business
Ramabhadran S. Thirumalai
Indian School of Business
November 17, 2007
Gapping the quote is a procedure NYSE specialists use to display the direction, size, and likely price impact of an order imbalance in an attempt to attract liquidity suppliers. It appears to be a liquidity event between an immediate block trade and a trading halt. For 85% of our 927 sample gapped quotes, we find an associated trade suggesting that the search for liquidity is successful. For these trades, the mean price impact is 35 basis points, but 40% of this is reversed by day's end. In about one-quarter of our gapped quotes the floor joins the public order in demanding liquidity.
Number of Pages in PDF File: 47
Keywords: Gapped quotes, pre-trade transparency, liquidity
JEL Classification: G10, G20working papers series
Date posted: December 7, 2007
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