Does Floor Trading Matter?

68 Pages Posted: 26 May 2020 Last revised: 26 Jan 2021

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Matthew C. Ringgenberg

University of Utah - Department of Finance

Dominik Rösch

State University of New York at Buffalo - School of Management; Erasmus University - Rotterdam School of Management

Date Written: January 25, 2021

Abstract

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, we find that floor traders are important contributors to market quality. The suspension of floor trading leads to higher effective and quoted spreads and larger pricing errors for treated stocks, relative to control stocks. Moreover, consistent with theoretical predictions about automation, the effects are strongest around the opening and closing auctions when complexity is highest. Our findings suggest that human expertise can complement algorithms in complex situations.

Keywords: Algorithmic trading, DMM, human trading, floor trading, liquidity, market making, market quality, price efficiency

JEL Classification: G12, G14

Suggested Citation

Brogaard, Jonathan and Ringgenberg, Matthew C. and Rösch, Dominik, Does Floor Trading Matter? (January 25, 2021). Available at SSRN: https://ssrn.com/abstract=3609007 or http://dx.doi.org/10.2139/ssrn.3609007

Jonathan Brogaard (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Matthew C. Ringgenberg

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Dominik Rösch

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

Jacobs Management Center
Buffalo, NY 14222
United States

HOME PAGE: http://dominikroesch.com

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

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