Dealer Attention, the Speed of Quote Adjustment to Information, and Net Dealer Revenue
55 Pages Posted: 17 Mar 2005
Date Written: June 6, 2007
Dealer revenue net of losses to better-informed traders in NYSE stocks is positively related to the speed at which quotes adjust to full information levels. The speed of quote adjustment is faster for stocks with greater dealer attention, as measured by a stock's relative prominence at its post-and-panel location on the NYSE floor. The level of dealer attention in turn is positively related to a stock's probability of information-based trading. The results are consistent with a simple theoretical model we derive in which dealers trade multiple securities and must optimally allocate their limited attention to monitoring order flow to minimize losses to better-informed traders.
Keywords: Microstructure, Market Quality, Trading Costs, Specialist Firms
JEL Classification: G14, G19
Suggested Citation: Suggested Citation