Advertising for Liquidity on the New York Stock Exchange
47 Pages Posted: 7 Dec 2007
Date Written: November 17, 2007
Abstract
Gapping the quote is a procedure NYSE specialists use to display the direction, size, and likely price impact of an order imbalance in an attempt to attract liquidity suppliers. It appears to be a liquidity event between an immediate block trade and a trading halt. For 85% of our 927 sample gapped quotes, we find an associated trade suggesting that the search for liquidity is successful. For these trades, the mean price impact is 35 basis points, but 40% of this is reversed by day's end. In about one-quarter of our gapped quotes the floor joins the public order in demanding liquidity.
Keywords: Gapped quotes, pre-trade transparency, liquidity
JEL Classification: G10, G20
Suggested Citation: Suggested Citation
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