Public Disclosure and Private Decisions: Equity Market Execution Quality and Order Routing
EDHEC Business School
Robert H. Jennings
Indiana University Bloomington - Kelley School of Business
New York Stock Exchange NYSE - Strategy and Research
The Review of Financial Studies, Vol. 20, Issue 2, pp. 315-358, 2007
In 2001, the Securities and Exchange Commission (SEC) required market centers to publish monthly execution-quality reports in an effort to spur competition for order flow between markets. Using samples of stocks trading on several markets, we investigate whether past execution quality affects order-routing decisions and whether the new disclosure requirements influence this relationship. We find that routing decisions are associated with execution quality; markets reporting low execution costs and fast fills subsequently receive more orders. Moreover, the reports themselves appear to provide information that was 2unavailable previously. Our results are consistent with active competition for order flow that can be influenced by public disclosure.
JEL Classification: JEL G24, G28, K22Accepted Paper Series
Date posted: July 17, 2008
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