Dealer Attention, the Speed of Quote Adjustment to Information, and Net Dealer Revenue

55 Pages Posted: 17 Mar 2005

See all articles by Alex Boulatov

Alex Boulatov

HSE Moscow; University of Houston - C.T. Bauer College of Business

Shane A. Johnson

Texas A&M University - Department of Finance

Brian C. Hatch

University of Cincinnati - Department of Finance - Real Estate

Adam Y.C. Lei

Midwestern State University

Date Written: June 6, 2007

Abstract

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

Boulatov, Alex and Johnson, Shane A. and Hatch, Brian C. and Lei, Adam Y.C., Dealer Attention, the Speed of Quote Adjustment to Information, and Net Dealer Revenue (June 6, 2007). Available at SSRN: https://ssrn.com/abstract=682681 or http://dx.doi.org/10.2139/ssrn.682681

Alex Boulatov

HSE Moscow ( email )

26 Shabolovka
Moscow
Russia

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4618 (Phone)

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

Brian C. Hatch

University of Cincinnati - Department of Finance - Real Estate ( email )

Carl H. Lindner Hall
P.O. Box 210195
Cincinnati, OH 45221
United States
513-556-7076 (Phone)
513-556-0979 (Fax)

Adam Y.C. Lei

Midwestern State University ( email )

3410 Taft Blvd
Wichita Falls, TX 76308
United States
(940) 397-4403 (Phone)
(940) 397-4693 (Fax)

HOME PAGE: http://www.adamyclei.com/

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