Abstract

http://ssrn.com/abstract=961041
 
 

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Levelling the Trading Field


David Easley


Cornell University - Department of Economics

Terrence Hendershott


University of California, Berkeley - Haas School of Business

Tarun Ramadorai


University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance; Centre for Economic Policy Research (CEPR)

March 24, 2013

Journal of Financial Markets, Forthcoming

Abstract:     
We examine the impact on stock prices of a major upgrade to the New York Stock Exchange’s trading environment. The upgrade was sequentially implemented across groups of stocks. The upgrade improved information dissemination on the trading floor and reduced the latency in reporting trades and quotes. We show that the portion of the upgrade that reduced latency and transparency for electronic orders had significant impacts on liquidity, turnover, and returns. A portfolio that is long stocks undergoing the upgrade in the first 20 days of the upgrade process and short stocks receiving the upgrade later has a return of roughly three percent over the period, depending on the method of risk adjustment. This return differential is eliminated when all stocks are upgraded. We argue that the abnormal return was a priced effect of the improved liquidity produced by the upgrade.

Number of Pages in PDF File: 48

Keywords: market structure, stock exchange, trading volume, transparency, information, latency, technology upgrade

JEL Classification: G12, G14

Accepted Paper Series


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Date posted: February 5, 2007 ; Last revised: June 30, 2013

Suggested Citation

Easley, David and Hendershott, Terrence and Ramadorai, Tarun, Levelling the Trading Field (March 24, 2013). Journal of Financial Markets, Forthcoming. Available at SSRN: http://ssrn.com/abstract=961041 or http://dx.doi.org/10.2139/ssrn.961041

Contact Information

David Easley
Cornell University - Department of Economics ( email )
414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)
Terrence J. Hendershott
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building
Berkeley, CA 94720
United States
Tarun Ramadorai (Contact Author)
University of Oxford - Said Business School ( email )
Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 278 816 (Phone)
+44 1865 288 805 (Fax)
HOME PAGE: http://www.tarunramadorai.com
University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )
Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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