Automated Versus Floor Trading: An Analysis of Execution Costs on the Paris and New York Exchanges

45 Pages Posted: 17 Oct 2000

See all articles by Kumar Venkataraman

Kumar Venkataraman

Southern Methodist University (SMU) - Finance Department

Date Written: November 2000

Abstract

A global trend towards automated trading systems raises the important question of whether execution costs are in fact lower than on trading floors. This paper compares the trade execution costs for the common stock of similar firms in an automated trading structure (Paris Bourse) and a floor-based trading structure (NYSE). Results indicate that execution costs are higher in Paris, and the difference is accentuated after the reduction in the minimum tick size on the NYSE in June 1997. Execution costs continue to be higher in Paris (14 basis points) than in New York after controlling for differences in adverse selection, relative tick size, and economic attributes across samples, and the cost differential appears to be economically significant. These results suggest that the present form of the automated trading system may not be able to fully replicate the benefits of human intermediation on a trading floor.

Keywords: Bid-ask spreads, stock markets, auction trading, electronic trading, ECNs

JEL Classification: G20

Suggested Citation

Venkataraman, Kumar, Automated Versus Floor Trading: An Analysis of Execution Costs on the Paris and New York Exchanges (November 2000). AFA 2001 New Orleans Meetings. Available at SSRN: https://ssrn.com/abstract=243104 or http://dx.doi.org/10.2139/ssrn.243104

Kumar Venkataraman (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-7005 (Phone)
214-768-4099 (Fax)

HOME PAGE: http://people.smu.edu/kumar/

Register to save articles to
your library

Register

Paper statistics

Downloads
779
rank
30,294
Abstract Views
2,438
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information