Download this Paper Open PDF in Browser

Are Nasdaq Stocks More Costly to Trade than NYSE Stocks? Evidence After Decimalization

33 Pages Posted: 27 Jul 2001  

Kee H. Chung

State University of New York at Buffalo - School of Management

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: July 24, 2001

Abstract

This paper examines execution costs and quote clustering on the NYSE and Nasdaq using 517 matching pairs of stocks after decimalization. We find that the average quoted, effective, and realized spreads of Nasdaq-listed stocks are 18%, 29%, and 58% larger, respectively, than those of NYSE-listed stocks. Stocks with a high proportion of even-sixteenth quotes prior to decimalization continue to show a high degree of quote clustering on nickel and dime quotes. Although quote clustering has a significant effect on both NYSE and Nasdaq spreads, the difference in spreads between the two markets is much larger than the level that can be accounted for by the differences in their stock attributes and quote clustering. Internalization and payment for order flow may still be responsible for the wider spreads of Nasdaq stocks.

Keywords: liquidity, spreads, decimal pricing, quote clustering

JEL Classification: G14, G18

Suggested Citation

Chung, Kee H. and Van Ness, Bonnie F. and Van Ness, Robert A., Are Nasdaq Stocks More Costly to Trade than NYSE Stocks? Evidence After Decimalization (July 24, 2001). Available at SSRN: https://ssrn.com/abstract=277817 or http://dx.doi.org/10.2139/ssrn.277817

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

Paper statistics

Downloads
501
Rank
45,859
Abstract Views
2,511