Liquidity Provision and the Organizational Form of NYSE Specialist Firms

Posted: 28 Dec 2003

See all articles by Jay F. Coughenour

Jay F. Coughenour

University of Delaware - Department of Finance

Daniel Deli

Securities and Exchange Commission (SEC)

Abstract

We examine the influence of NYSE specialist firm organizational form on the nature of liquidity provision. We compare closely held firms whose specialists provide liquidity with their own capital to widely held firms whose specialists provide liquidity with diffusely owned capital. We argue that specialists using their own capital have a greater incentive and ability to reduce adverse selection costs, but face a greater cost of capital. Differences in the proportion of spreads due to adverse selection costs, large trade frequency, the sensitivity between depth and spreads, and price stabilization support this argument.

Suggested Citation

Coughenour, Jay F. and Deli, Daniel, Liquidity Provision and the Organizational Form of NYSE Specialist Firms. Journal of Finance, Vol. 57, pp. 841-869, 2002, Available at SSRN: https://ssrn.com/abstract=309183

Jay F. Coughenour

University of Delaware - Department of Finance ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States
(302) 831-1015 (Phone)

Daniel Deli (Contact Author)

Securities and Exchange Commission (SEC)

450 Fifth Street, NW
Washington, DC 20549-1105
United States

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