Abstract

http://ssrn.com/abstract=537785
 
 

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Specialist Profits and the Minimum Price Increment


Jay F. Coughenour


University of Delaware - Department of Finance

Lawrence Harris


University of Southern California - Marshall School of Business - Finance and Business Economics Department

April 30, 2004



Abstract:     
NYSE specialist participation rates and profits are affected by the rules that govern their trades. Lowering the minimum tick from $1/16 to $0.01 effectively relaxed the public order precedence rule, gave specialists more price points within the bid-ask spread on which to quote aggressively, and lowered spreads. Due to these offsetting forces, we find that average specialist gross trading profits were not significantly altered, but their participation increased. Cross-sectional analyses reveal that participation rates and high-frequency trading profits increased more for specialists handling stocks where the cost and opportunity of obtaining order precedence were relatively expensive and scarce prior to the tick change.

Number of Pages in PDF File: 46

Keywords: NYSE Specialists, Decimalization, Trading Profits, Spectral Analysis

JEL Classification: C22, G18, G20

working papers series





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Date posted: April 30, 2004  

Suggested Citation

Coughenour, Jay F. and Harris, Lawrence, Specialist Profits and the Minimum Price Increment (April 30, 2004). Available at SSRN: http://ssrn.com/abstract=537785 or http://dx.doi.org/10.2139/ssrn.537785

Contact Information

Jay F. Coughenour (Contact Author)
University of Delaware - Department of Finance ( email )
Alfred Lerner College of Business and Economics
Newark, DE 19716
United States
(302) 831-1015 (Phone)
Lawrence Harris
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6496 (Phone)
213-740-6650 (Fax)
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