Does Floor Trading Matter?
Journal of Finance, Forthcoming
61 Pages Posted: 26 May 2020 Last revised: 6 Mar 2023
Date Written: March 6, 2023
While algorithmic trading now dominates financial markets, some exchanges continue to use human floor traders. On March 23, 2020 the NYSE suspended floor trading because of COVID-19. Using a difference-in-differences analysis around the closure of the floor, we find that floor traders are important contributors to market quality. The suspension of floor trading leads to higher spreads and larger pricing errors for treated stocks, relative to control stocks. To explore the mechanism we exploit two partial floor reopenings which have different characteristics. Our finding suggest that in person human interaction facilitates the transfer of valuable information that algorithms lack.
Keywords: Algorithmic trading, DMM, human trading, floor trading, liquidity, market quality, price efficiency
JEL Classification: G12, G14
Suggested Citation: Suggested Citation