Auction and Dealer Markets: An Empirical Analysis of New York Stock Exchange Specialist Trading
NYSE working paper #94-01
Posted: 10 Aug 1999
Date Written: August 1994
This paper uses specialist transaction data to examine the magnitude and determinants of NYSE specialist dealer trading in their assigned stocks. Specialist dealer trading varies widely across stocks. At one extreme, in 7 percent of the sampled stocks the specialist participation rate exceeds 60 percent; these stocks essentially trade in a dealer market. At the other extreme, in 17 percent of the sampled stocks the specialist participation rate is less than 10 percent; these stocks trade in what approximates a pure auction market with minimal specialist dealer trading. Specialist dealer trading is related to the composition of volume and other stock- specific characteristics. In particular, specialist trading rises with nonblock volume but declines with block volume. We also analyze the determinants of specialist participation in a given stock over time. We find that specialists are more likely to buy when their inventory is low and sell when their inventory is high.
JEL Classification: G14
Suggested Citation: Suggested Citation