Differences in Individual NYSE Specialists' Performances and Strategies

Posted: 19 Dec 2009

See all articles by Bülent Köksal

Bülent Köksal

affiliation not provided to SSRN

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Date Written: December, 18 2009

Abstract

This paper shows that there exist differences in the performances of individual NYSE specialists in terms of the execution costs and participation strategies to the posted quotes and trades. We find that quoted and effective spreads, quoted depth, and number of trades that receive price improvement differ significantly across individual specialists. The explanatory power of the model as measured by adjusted R2 increases when we include the individual specialist dummies. Evidence suggests that some of the differences across specialist firms documented in the previous literature are due to the differences in individual specialists. We find that, as the trading frequency increases, order processing costs increase for the portfolios of the individual specialists which implies that specialists use profits from active stocks to subsidize inactive stocks in their portfolios. Using 2001 NYSE system order data in the decimal pricing environment, we also show that individual NYSE specialists differ significantly in their participation strategies to the posted quotes and trades. This suggests that there are significant differences in execution costs between specialists because they use different quoting and trading strategies.

Keywords: NYSE specialists, Dealer Trading, Market Makers, Limit Order Book, osted Quotes

JEL Classification: G20

Suggested Citation

Köksal, Bülent, Differences in Individual NYSE Specialists' Performances and Strategies (December, 18 2009). Review of Financial Economics, Vol. 19, No. 1, 2010, Available at SSRN: https://ssrn.com/abstract=1525234

Bülent Köksal (Contact Author)

affiliation not provided to SSRN

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