IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v57y2002i2p841-869.html
   My bibliography  Save this article

Liquidity Provision and the Organizational Form of NYSE Specialist Firms

Author

Listed:
  • Jay F. Coughenour
  • Daniel N. Deli

Abstract

We examine the influence of NYSE specialist firm organizational form on the nature of liquidity provision. We compare closely held firms whose specialists provide liquidity with their own capital to widely held firms whose specialists provide liquidity with diffusely owned capital. We argue that specialists using their own capital have a greater incentive and ability to reduce adverse selection costs, but face a greater cost of capital. Differences in the proportion of spreads due to adverse selection costs, large trade frequency, the sensitivity between depth and spreads, and price stabilization support this argument.

Suggested Citation

  • Jay F. Coughenour & Daniel N. Deli, 2002. "Liquidity Provision and the Organizational Form of NYSE Specialist Firms," Journal of Finance, American Finance Association, vol. 57(2), pages 841-869, April.
    • Handle: RePEc:bla:jfinan:v:57:y:2002:i:2:p:841-869
    DOI: 10.1111/1540-6261.00444
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1540-6261.00444
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1540-6261.00444?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. LaPlante, Michele & Muscarella, Chris J., 1997. "Do institutions receive comparable execution in the NYSE and Nasdaq markets? A transaction study of block trades," Journal of Financial Economics, Elsevier, vol. 45(1), pages 97-134, July.
    2. Kenneth A. Kavajecz, 1999. "A Specialist's Quoted Depth and the Limit Order Book," Journal of Finance, American Finance Association, vol. 54(2), pages 747-771, April.
    3. Stoll, Hans R, 1978. "The Pricing of Security Dealer Services: An Empirical Study of NASDAQ Stocks," Journal of Finance, American Finance Association, vol. 33(4), pages 1153-1172, September.
    4. Huang, Roger D. & Stoll, Hans R., 1996. "Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE," Journal of Financial Economics, Elsevier, vol. 41(3), pages 313-357, July.
    5. Madhavan, Ananth & Richardson, Matthew & Roomans, Mark, 1997. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," The Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1035-1064.
    6. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-651.
    7. Stoll, Hans R, 1978. "The Supply of Dealer Services in Securities Markets," Journal of Finance, American Finance Association, vol. 33(4), pages 1133-1151, September.
    8. Shane A. Corwin, 1999. "Differences in Trading Behavior across NYSE Specialist Firms," Journal of Finance, American Finance Association, vol. 54(2), pages 721-745, April.
    9. Harris, Lawrence E, 1994. "Minimum Price Variations, Discrete Bid-Ask Spreads, and Quotation Sizes," The Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 149-178.
    10. Madhavan, Ananth & Sofianos, George, 1998. "An empirical analysis of NYSE specialist trading," Journal of Financial Economics, Elsevier, vol. 48(2), pages 189-210, May.
    11. Stoll, Hans R & Whaley, Robert E, 1990. "Stock Market Structure and Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 37-71.
    12. Bessembinder, Hendrik, 1997. "The degree of price resolution and equity trading costs," Journal of Financial Economics, Elsevier, vol. 45(1), pages 9-34, July.
    13. Benveniste, Lawrence M. & Marcus, Alan J. & Wilhelm, William J., 1992. "What's special about the specialist?," Journal of Financial Economics, Elsevier, vol. 32(1), pages 61-86, August.
    14. Lee, Charles M C & Ready, Mark J, 1991. "Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-746, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paolo Pasquariello & Clara Vega, 2015. "Strategic Cross-Trading in the U.S. Stock Market," Review of Finance, European Finance Association, vol. 19(1), pages 229-282.
    2. Charles Ka Yui Leung & Chung-Yi Tse, 2012. "Flippers in Housing Market Search," 2012 Meeting Papers 434, Society for Economic Dynamics.
    3. O’Sullivan, Conall & Papavassiliou, Vassilios G., 2020. "On the term structure of liquidity in the European sovereign bond market," Journal of Banking & Finance, Elsevier, vol. 114(C).
    4. Anand, Amber & Chakravarty, Sugato & Chuwonganant, Chairat, 2009. "Cleaning house: Stock reassignments on the NYSE," Journal of Financial Markets, Elsevier, vol. 12(4), pages 727-753, November.
    5. Goldstein, Michael A. & Namin, Elmira Shekari, 2023. "Corporate bond liquidity and yield spreads: A review," Research in International Business and Finance, Elsevier, vol. 65(C).
    6. Bülent Köksal, 2010. "Differences in individual NYSE specialists' performances and strategies," Review of Financial Economics, John Wiley & Sons, vol. 19(1), pages 8-18, January.
    7. Anand, Amber, 2005. "Specialist: The firm or the individual?: Empirical evidence from the options markets," Journal of Economics and Business, Elsevier, vol. 57(6), pages 555-575.
    8. Brian T. McCann & Govert Vroom, 2014. "Competitive Behavior and Nonfinancial Objectives: Entry, Exit, and Pricing Decisions in Closely Held Firms," Organization Science, INFORMS, vol. 25(4), pages 969-990, August.
    9. Boulatov, Alex & Hatch, Brian C. & Johnson, Shane A. & Lei, Adam Y.C., 2009. "Dealer attention, the speed of quote adjustment to information, and net dealer revenue," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1531-1542, August.
    10. Fabrice Roth, 2012. "Crise et régulation des marchés financiers : Quel impact sur les formes mutuelles dans l'assurance ?," Working Papers halshs-00692342, HAL.
    11. Hatch, Brian C. & Johnson, Shane A., 2002. "The impact of specialist firm acquisitions on market quality," Journal of Financial Economics, Elsevier, vol. 66(1), pages 139-167, October.
    12. Stefan Gissler, 2015. "Slow capital, fast prices: Shocks to funding liquidity and stock price reversals," Finance and Economics Discussion Series 2015-43, Board of Governors of the Federal Reserve System (U.S.).
    13. Avanidhar Subrahmanyam, 2005. "Distinguishing Between Rationales for Short‐Horizon Predictability of Stock Returns," The Financial Review, Eastern Finance Association, vol. 40(1), pages 11-35, February.
    14. Buti, Sabrina, 2007. "A Challenger to the Limit Order Book: The NYSE Specialist," SIFR Research Report Series 55, Institute for Financial Research.
    15. Shane A. Corwin & Jay F. Coughenour, 2008. "Limited Attention and the Allocation of Effort in Securities Trading," Journal of Finance, American Finance Association, vol. 63(6), pages 3031-3067, December.
    16. Coughenour, Jay F. & Saad, Mohsen M., 2004. "Common market makers and commonality in liquidity," Journal of Financial Economics, Elsevier, vol. 73(1), pages 37-69, July.
    17. Patricia C. Mosser & Joseph Tracy & Joshua Wright, 2013. "The capital structure and governance of a mortgage securitization utility," Staff Reports 644, Federal Reserve Bank of New York.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Biais, Bruno & Glosten, Larry & Spatt, Chester, 2005. "Market microstructure: A survey of microfoundations, empirical results, and policy implications," Journal of Financial Markets, Elsevier, vol. 8(2), pages 217-264, May.
    2. Jagjeev Dosanjh, 2017. "Exchange Initiatives and Market Efficiency: Evidence from the Australian Securities Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2017, January-A.
    3. repec:uts:finphd:34 is not listed on IDEAS
    4. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
    5. Hatch, Brian C. & Johnson, Shane A., 2002. "The impact of specialist firm acquisitions on market quality," Journal of Financial Economics, Elsevier, vol. 66(1), pages 139-167, October.
    6. Wu, Chunchi, 2004. "Information flow, volatility and spreads of infrequently traded Nasdaq stocks," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(1), pages 20-43, February.
    7. Boulatov, Alex & Hatch, Brian C. & Johnson, Shane A. & Lei, Adam Y.C., 2009. "Dealer attention, the speed of quote adjustment to information, and net dealer revenue," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1531-1542, August.
    8. Pascual, Roberto & Pascual-Fuster, Bartolome & Climent, Francisco, 2006. "Cross-listing, price discovery and the informativeness of the trading process," Journal of Financial Markets, Elsevier, vol. 9(2), pages 144-161, May.
    9. Chung, Kee H. & Van Ness, Bonnie F. & Van Ness, Robert A., 1999. "Limit orders and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 53(2), pages 255-287, August.
    10. Ahn, Hee-Joon & Cao, Charles Q. & Choe, Hyuk, 1998. "Decimalization and competition among stock markets: Evidence from the Toronto Stock Exchange cross-listed securities," Journal of Financial Markets, Elsevier, vol. 1(1), pages 51-87, April.
    11. Fishe, Raymond P. H. & Robe, Michel A., 2004. "The impact of illegal insider trading in dealer and specialist markets: evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 71(3), pages 461-488, March.
    12. Thomas Johann & Erik Theissen, 2013. "Liquidity measures," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 10, pages 238-255, Edward Elgar Publishing.
    13. Lipson, Marc L. & Mortal, Sandra, 2006. "The effect of stock splits on clientele: Is tick size relevant?," Journal of Corporate Finance, Elsevier, vol. 12(5), pages 878-896, December.
    14. Anand, Amber & Chakravarty, Sugato & Chuwonganant, Chairat, 2009. "Cleaning house: Stock reassignments on the NYSE," Journal of Financial Markets, Elsevier, vol. 12(4), pages 727-753, November.
    15. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    16. Victoria Saporta & Giorgio Trebeschi & Anne Vila, 1999. "Price formation and transparency on the London Stock Exchange," Bank of England working papers 95, Bank of England.
    17. Bacidore, Jeffrey M. & Sofianos, George, 2002. "Liquidity provision and specialist trading in NYSE-listed non-U.S. stocks," Journal of Financial Economics, Elsevier, vol. 63(1), pages 133-158, January.
    18. Köksal, Bülent, 2010. "Participation strategy of the NYSE specialists to the posted quotes," The North American Journal of Economics and Finance, Elsevier, vol. 21(3), pages 314-331, December.
    19. Stoll, Hans R. & Schenzler, Christoph, 2006. "Trades outside the quotes: Reporting delay, trading option, or trade size?," Journal of Financial Economics, Elsevier, vol. 79(3), pages 615-653, March.
    20. Shafiqur Rahman & Chandrasekhar Krishnamurti & Alice Lee, 2005. "The Dynamics of Security Trades, Quote Revisions, and Market Depths for Actively Traded Stocks," Review of Quantitative Finance and Accounting, Springer, vol. 25(2), pages 91-124, September.
    21. Bernhardt, Dan & Hughson, Eric, 2002. "Intraday trade in dealership markets," European Economic Review, Elsevier, vol. 46(9), pages 1697-1732, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:57:y:2002:i:2:p:841-869. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.