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Competing with the New York Stock Exchange

Author

Listed:
  • William O. Brown
  • J. Harold Mulherin
  • Marc D. Weidenmier

Abstract

Research on information economics and securities markets dating back to Stigler (Journal of Political Economy, 69 (1961), 213–225; Journal of Business, 37 (1964), 117–142) argues that trading will tend to centralize in major market centers such as the New York Stock Exchange (NYSE). The NYSE's recent mergers with Archipelago and Euronext bring questions about the viability and effects of competition between stock exchanges to the policy forefront. We examine the largely forgotten but unparalleled episode of competition between the NYSE and the Consolidated Stock Exchange of New York (Consolidated) from 1885 to 1926. The Consolidated averaged 23% of NYSE volume for approximately forty years by operating a second market for the most liquid securities that traded on the Big Board. Our results suggest that NYSE bid-ask spreads fell by more than 10% when the Consolidated began to trade NYSE stocks and subsequently increased when the Consolidated ceased operations. The empirical analysis suggests that this historical episode of stock market competition improved consumer welfare by an amount equivalent to US$9.6 billion today.

Suggested Citation

  • William O. Brown & J. Harold Mulherin & Marc D. Weidenmier, 2008. "Competing with the New York Stock Exchange," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1679-1719.
    • Handle: RePEc:oup:qjecon:v:123:y:2008:i:4:p:1679-1719.
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    File URL: http://hdl.handle.net/10.1162/qjec.2008.123.4.1679
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    Cited by:

    1. Kei Kawakami, 2014. "Information Aggregation and Optimal Market Size," Department of Economics - Working Papers Series 1182, The University of Melbourne.
    2. Kei Kawakami, 2017. "Welfare Consequences of Information Aggregation and Optimal Market Size," American Economic Journal: Microeconomics, American Economic Association, vol. 9(4), pages 303-323, November.
    3. Kathryn L Dewenter & Xi Han & Jennifer L Koski, 2018. "Who Wins When Exchanges Compete?* Evidence from Competition after Euro Conversion [Equity returns and integration: is Europe changing?]," Review of Finance, European Finance Association, vol. 22(6), pages 2037-2071.
    4. Kei Kawakami, 2013. "Optimal Market Size," Department of Economics - Working Papers Series 1168, The University of Melbourne.
    5. Asaf Bernstein & Eric Hughson & Marc D. Weidenmier, 2014. "Counterparty Risk and the Establishment of the New York Stock Exchange Clearinghouse," NBER Working Papers 20459, National Bureau of Economic Research, Inc.
    6. Pierre-Cyrille Hautcoeur & Amir Rezaee & Angelo Riva, 2023. "Competition between securities markets: stock exchange industry regulation in the Paris financial center at the turn of the twentieth century," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 17(2), pages 261-299, May.
    7. Pierre-Cyrille Hautcoeur & Amir Rezaee & Angelo Riva, 2018. "Competition among Securities Markets," Working Papers halshs-01863942, HAL.

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