An Analysis of Liquidity Across Markets: Execution Costs on the NYSE versus Electronic Markets

LIQUIDITY, INTEREST RATES AND BANKING, Chapter 7, pp. 139-167, Jeffrey Morrey, Alexander Guyton, eds., Nova Publishers, New York, 2009

37 Pages Posted: 23 Nov 2010

See all articles by Michael A. Goldstein

Michael A. Goldstein

Babson College - Finance Division

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

J. Ginger Meng

Stonehill College - Department of Business Administration

Date Written: April 17, 2008

Abstract

We examine liquidity across different types of markets by using execution costs as a proxy for liquidity. We conduct a thorough analysis of execution costs on the NYSE versus Electronic Markets. We adopt a variety of techniques attempting to correct for the selection bias problem. Unlike current literature, we find that Electronic Markets offer lower execution costs even after controlling for selection biases. In addition to controlling for selection biases at the sample average level of order difficulty, we also carry out our analysis at different levels of order difficulty, measured by a vector of control variables. Our results are robust under different model specifications. Finally, our what-if analysis shows that Electronic Markets’ (the NYSE’s) orders would have been worse (better) off, had they been executed by the NYSE (Electronic Markets). Overall, our results highlight the superiority of Electronic Markets’ liquidity and execution quality.

Keywords: Liquidity, Execution Costs, Electronic Markets

Suggested Citation

Goldstein, Michael A. and Hu, Gang and Meng, J. Ginger, An Analysis of Liquidity Across Markets: Execution Costs on the NYSE versus Electronic Markets (April 17, 2008). LIQUIDITY, INTEREST RATES AND BANKING, Chapter 7, pp. 139-167, Jeffrey Morrey, Alexander Guyton, eds., Nova Publishers, New York, 2009. Available at SSRN: https://ssrn.com/abstract=1713097

Michael A. Goldstein

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

J. Ginger Meng (Contact Author)

Stonehill College - Department of Business Administration ( email )

320 Washington Street
Easton, MA 02357
United States
508-565-1986 (Phone)

HOME PAGE: http://www.stonehill.edu/directory/j-ginger-meng/

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