Does the Specialist Matter? Differential Execution Costs and Inter-Security Subsidization on the NYSE

Posted: 19 Feb 1997

See all articles by Charles Cao

Charles Cao

Pennsylvania State University

Hyuk Choe

Seoul National University - College of Business Administration

Frank Hatheway

National Association of Securities Dealers, Inc., NASD

Date Written: November 1996Contact: Charles Cao

Abstract

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

Cao, Charles and Choe, Hyuk and Hatheway, Frank, Does the Specialist Matter? Differential Execution Costs and Inter-Security Subsidization on the NYSE (November 1996Contact: Charles Cao). Available at SSRN: https://ssrn.com/abstract=8121

Charles Cao (Contact Author)

Pennsylvania State University ( email )

Department of Finance
Smeal College of Business
University Park, PA 16802
United States
814-865-7891 (Phone)
814-865-3362 (Fax)

HOME PAGE: http://www.personal.psu.edu/qxc2/cao.html

Hyuk Choe

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)
822-880 8257 (Phone)
822-882 0547 (Fax)

Frank Hatheway

National Association of Securities Dealers, Inc., NASD ( email )

1801 K Street, NW
Washington, DC 20006-1500
United States
202-974-2719 (Phone)

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