Preferenced Trading, Quote Competition, and Market Quality: Evidence from Decimalization on the NYSE

18 Pages Posted: 13 Jul 2010

See all articles by Wei Huang

Wei Huang

University of Hawaii at Manoa - Shidler College of Business

S. Ghon Rhee

University of Hawaii - Shidler College of Business; University of Hawaii - Department of Financial Economics and Institutions

Ning Tang

Wilfrid Laurier University

Abstract

We examine the impact of decimalization on preferenced trading in NYSE-listed stocks and show a significant decline in preferenced trading around decimalization. For the largest NYSE stocks, the total decline is nearly 22%. We also find a negative correlation between the changes in preferenced trading and the changes in quote competition intensity, and a positive correlation between the changes in preferenced trading and the changes in spreads. Consistent with the cream skimming hypothesis, we find that abnormal changes in information asymmetry cost for NYSE trades are positively correlated with the changes in preferenced trading.

Suggested Citation

Huang, Wei and Rhee, S. Ghon and Tang, Ning, Preferenced Trading, Quote Competition, and Market Quality: Evidence from Decimalization on the NYSE. Financial Review, Vol. 45, Issue 3, pp. 523-540, August 2010. Available at SSRN: https://ssrn.com/abstract=1639192 or http://dx.doi.org/10.1111/j.1540-6288.2010.00259.x

Wei Huang (Contact Author)

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States
808-956-7679 (Phone)
808-956-9887 (Fax)

S. Ghon Rhee

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii - Department of Financial Economics and Institutions ( email )

United States

Ning Tang

Wilfrid Laurier University ( email )

75 University Ave W
Waterloo, Ontario N2L 3C5
Canada

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