A Comparison of Trade Execution Costs for NYSE and Nasdaq- Listed Stocks

Posted: 5 Feb 1997

Date Written: November 1996


We compare average trade execution costs during 1994 for sets of large, medium, and small capitalization stocks listed on the New York and Nasdaq stock markets. All measures of execution costs examined, including quoted bid-ask spreads, effective spreads (which allow for executions within the quotes), and realized spreads (which measure price reversals after trades), are larger for Nasdaq than for NYSE-listed stocks. The differentials in average trading costs across exchanges are larger for medium and small capitalization issues than for large capitalization stocks, and are greater for small compared to large trades. These differentials cannot be attributed to cross- exchange differences in the adverse selection costs of market making. Finally, we find no evidence that average execution costs on Nasdaq declined after the publicized events of May 1994.

JEL Classification: G10, G20

Suggested Citation

Bessembinder, Hendrik (Hank) and Kaufman, Herbert Mark, A Comparison of Trade Execution Costs for NYSE and Nasdaq- Listed Stocks (November 1996). Available at SSRN: https://ssrn.com/abstract=8082

Hendrik (Hank) Bessembinder (Contact Author)

Arizona State University ( email )

PO Box 873906
Tempe, AZ 85207
United States

Herbert Mark Kaufman

Arizona State University ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
602-965-3131 (Phone)
602-965-8539 (Fax)

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