Information, Execution Quality, and Order Routing Decisions on NASDAQ

35 Pages Posted: 5 Feb 2009 Last revised: 24 Jan 2010

See all articles by Ryan Garvey

Ryan Garvey

Duquesne University

Fei Wu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Date Written: February 1, 2009

Abstract

Prior research indicates that both execution speed and cost are important to traders, but that these two dimensions of execution quality are negatively related across U.S. equity markets. In our paper, we examine how U.S. equity traders, who are (un)informed about future price changes, trade-off between speed and cost in their order-routing decisions. We find that informed traders are more likely to choose trading systems that allow them to trade-off lower cost for faster speed, whereas uninformed traders are more likely to choose trading systems that allow them to sacrifice speed for lower costs. Our results indicate that traders have varying preferences for the different dimensions of execution quality based on their information levels. These differences subsequently influence order-routing decisions.

Keywords: order routing, order execution quality, informed trading, Nasdaq

JEL Classification: G10

Suggested Citation

Garvey, Ryan and Wu, Fei, Information, Execution Quality, and Order Routing Decisions on NASDAQ (February 1, 2009). Available at SSRN: https://ssrn.com/abstract=1337790 or http://dx.doi.org/10.2139/ssrn.1337790

Ryan Garvey

Duquesne University ( email )

600 Forbes Avenue
Pittsburgh, PA 15282
United States

Fei Wu (Contact Author)

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

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