Do Investors Avoid Odd-Eighth Prices? Evidence from NYSE Limit Orders

38 Pages Posted: 5 Feb 2001

See all articles by John Cooney

John Cooney

Texas Tech University - Rawls College of Business

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: February 14, 2001

Abstract

We examine a large sample of electronically placed limit orders on NYSE stocks to investigate (1) what limit prices investors choose, (2) the relation between investor limit prices and stock quotes, and (3) limit order execution rates. We find that both individual and institutional investors exhibit a preference for even-eighth prices when they submit limit orders to buy and sell NYSE stocks. Clustering on even prices is a positive function of the firm?s stock rice and return volatility. Analysis of quote prices show there is a positive relation between the percentage of even-eighth limit orders and the percentage of even-eighth quotes. In addition, quoted depth is significantly higher for even-eighth quotes than for odd-eighth quotes. After decomposing the depth into the portions provided by the specialist and limit order investors, we find that both provide additional depth when the quote is even. Despite the fact that there are a greater number of even-eighth limit orders and greater depth at even quotes, the proportion of executing limit orders submitted with even-eighth prices is similar to those submitted with odd-eighth prices. Therefore, this pricing decision by investors does not appear to have a detrimental impact on limit order execution rates.

Suggested Citation

Cooney, John W. and Van Ness, Bonnie F. and Van Ness, Robert A., Do Investors Avoid Odd-Eighth Prices? Evidence from NYSE Limit Orders (February 14, 2001). Available at SSRN: https://ssrn.com/abstract=249967 or http://dx.doi.org/10.2139/ssrn.249967

John W. Cooney

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States
806-834-1536 (Phone)

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States