A Comparison of Liquidity between Electronic Open Limit Order Book and Specialist Market Structures: Evidence from Cross-Listed Securities on the Australian and New York Stock Exchanges

Abstract

This study compares the costs of trading on the New York Stock Exchange, a competitive specialist market, with the Australian Stock Exchange which operates an electronic open limit order book. The results suggest that the electronic open limit order book provides lower execution costs after controlling for stock price, trade size, trading activity and price volatility. The evidence presented also suggests that this difference in execution costs increases with trading activity, and decreases as price volatility and the size of trades increases. Further analysis on a stock by stock basis implies that while the higher execution costs on the NYSE are a pervasive phenomenon occurring on average across all securities, the other relationships vary across securities.

JEL Classification: G10, G15