Market Structures and Liquidity: A Transactions Data Study of Exchange Listings

Abstract

This paper examines the change in trading costs for firms that choose to move from a dealer market to a specialist system. Using transactions data, our empirical results reveal structurally induced average trading cost reductions of 4.7 (5.2) cents per share for firms that moved from the NASDAQ/NMS to the NYSE (Amex) in 1990. For NYSE listed stocks, the trading costs reductions are equally divided between quote improvements and the routing of trades to the NYSE. Trading costs improvements vary inversely with trade sizes and positively with dollar spreads. Finally, the greatest liquidity benefits from listing accrue to the less liquid stocks.

JEL Classification: D40, G12, G20