Trading Costs and Quote Clustering on the NYSE and NASDAQ after Decimalization

31 Pages Posted: 2 Oct 2003

See all articles by Kee H. Chung

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

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Abstract

We examine execution costs and quote clustering on the NYSE and NASDAQ using 517 matching pairs of stocks after decimalization. We find that the mean spread of NASDAQ stocks is greater than the mean spread of NYSE stocks when spreads are equally weighted across stocks and the difference is greater for smaller stocks. In contrast, the mean NASDAQ spread is narrower than the mean NYSE spread when spreads are volume-weighted and the difference is statistically significant for large stocks. Both NYSE and NASDAQ stocks exhibit high degrees of quote clustering on nickels and dimes and quote clustering has a significant effect on spreads in both markets.

Keywords: Trading cost, Decimal pricing, Quote clustering, Averaging method

JEL Classification: G14, G18

Suggested Citation

Chung, Kee H. and Van Ness, Bonnie F. and Van Ness, Robert A., Trading Costs and Quote Clustering on the NYSE and NASDAQ after Decimalization. Available at SSRN: https://ssrn.com/abstract=439861 or http://dx.doi.org/10.2139/ssrn.439861

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