In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets

REVIEW OF FINANCIAL STUDIES, Vol. 10 No. 1

Posted: 16 Apr 1997

Multiple version iconThere are 2 versions of this paper

Abstract

We analyze the ability of various market mechanisms to provide liquidity for large equity trades. Using data on 21,077 block transactions in Dow Jones stocks, we find that the 'downstairs' NYSE floor market is a significant source of liquidity. Although negotiation in the informal 'upstairs' market provides better execution than the downstairs market for large trades, these differences are economically small. We find, however, that upstairs markets are used by traders who can credibly signal that their trades are liquidity-motivated. Thus, upstairs markets allow trades that may not otherwise occur.

JEL Classification: G14

Suggested Citation

Madhavan, Ananth and Cheng, Minder, In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets. REVIEW OF FINANCIAL STUDIES, Vol. 10 No. 1. Available at SSRN: https://ssrn.com/abstract=8281

Ananth Madhavan (Contact Author)

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

Minder Cheng

ThirdStream Partners LLC ( email )

650 California Street
31st Floor
San Francisco, CA 94108
United States

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