Does the Specialist Matter? Differential Execution Costs and Inter-Security Subsidization on the NYSE
Posted: 19 Feb 1997
Date Written: November 1996Contact: Charles Cao
This paper tests for differences in execution costs among specialist firms for NYSE listed securities. Execution cost differences provide a useful measure of the relative performance of specialist firms. We find a substantial difference in effective spreads and order processing costs across specialist firms, controlling for stock characteristics. While economically significant, the differences in execution costs between specialist firms are much smaller than the cross-market differences reported by Huang and Stoll (1996). Within a specialist firm, there is a positive relation between order processing costs and trading activity which is consistent with the hypothesis that active stocks subsidize inactive stocks.
JEL Classification: G10, G20
Suggested Citation: Suggested Citation