MARKET STRUCTURE AND REPORTED TRADING VOLUME: NASDAQ VERSUS THE NYSE

Trading volume for common stocks is of interest to financial economists, investors, and securities lawyers. NASDAQ is a dealer market where trades with dealers are included in reported trading volume. This procedure does not accurately measure the trading volume by public buyers and sellers. Trading volume reported on the NYSE, which is primarily an auction market, provides a much closer measure of trades by public investors. We examine a sample of firms whose stock traded on the NASDAQ/NMS and subsequently on the NYSE. When trading switches to the NYSE, the firms' trading volume drops to about 50 percent of the volume previously reported on NASDAQ. A control group of firms that switched from the AMEX to the NYSE shows a small, but statistically insignificant, increase in trading volume.     

Measuring abnormal daily trading volume for samples of NYSE/ASE and NASDAQ securities using parametric and nonparametric test statistics

We extend prior research on the empirical properties of daily trading volume and methods to detect abnormal trading volume in two ways. We compare the performance of a nonparametric test statistic with the parametric test statistic used in prior research and we study samples of NASDAQ securities as well as samples of NYSE/ASE securities. Prior research has focused exclusively on NYSE securities. We find the nonparametric test statistic is more powerful in detecting abnormal trading volume than the parametric test statistic in both samples of NYSE/ASE and NASDAQ securities. We also document that abnormal trading volume will be detected more often in samples of NYSE/ASE securities compared to NASDAQ securities.     

MARKET STRUCTURE AND TRADING VOLUME

Historically, trading volume reported for NASDAQ stocks has been overstated vis‐à‐vis New York Stock Exchange (NYSE) stocks, both because of the dealer's participation in trades as a market maker and because of interdealer trading. Beginning in 1997, the Securities and Exchange Commission changed order‐handling rules and trade‐reporting rules, which may have reduced or eliminated the overstatement of NASDAQ trading. We examine trading volumes of firms changing from NASDAQ to the NYSE since 1997 and document that reported trading volume for NASDAQ stocks continues to be overstated. Moreover, the degree of overstatement is much larger for firms with high trading volume.     

Characteristics and mechanisms of the U.S. stock market spillover effects on the Chinese A-share market: Evidence from 6 A-share broad-based and 31 sector indices

This study investigated the NYSE and NASDAQ composite indices' return and volatility spillover on 37 Chinese A-share indices. We used data from 2010 to 2022 with Multiplicative-Heteroskedasticity-GARCHX and rolling window analysis. We also applied a vector autoregression and impulse response analysis to study the relationship between the spillover effect and market return or volume condition. We found that: (1) the spillover effect of U.S. stocks can be quickly and mostly absorbed by the A-share market in the next trading day; (2) the dissimilarity of constituents among A-share indices contributes to the differences in the NYSE and NASDAQ spillover effects; (3) the spillover becomes more significant and prominent when the market performance is poor or when some special events occurred.     

When noise trading fades,volatility rises

We hypothesize and test an inverse relation between liquidity and price volatility derived from microstructure theory. Two important facets of liquidity trading are examined: volume and noisiness. As represented by the expected turnover rate (volume) and realized average commission cost per share (noisiness) of NYSE equity trading, both facets are found negatively associated with the ex post and ex ante return volatilities of the NYSE stock portfolios and the NYSE composite index futures. Furthermore, the inverse association between noisiness and volatility is amplified in times of market crisis. The negative noisiness–volatility relation is also supported by our analysis on the effects of trade size on price volatility. The overall results demonstrate that volatility increases as noise trading declines.     

THE OVER-THE-COUNTER MARKET AND NEW YORK STOCK EXCHANGE TRADING HALTS

This paper examines the over-the-counter (OTC) market activities for stocks temporarily suspended by the New York Stock Exchange (NYSE). Unlike previous studies, we use transaction-to-transaction data on the NASDAQ during NYSE trading halts to investigate the price adjustment process between market equilibria. The evidence indicates that while being halted by the NYSE, the same stocks have exhibited significantly greater volatility in the OTC market. Since the volatile price movement is mainly random and provides no arbitraging opportunities for the OTC market traders, we do not find support for the proposal that trading halts should be mandatory for all trading locations.     

The dynamics of quote adjustments

Liquidity providers on the NYSE make faster quote adjustments towards equilibrium spreads and depths than they do on NASDAQ. Liquidity providers in both markets make faster spread and depth adjustments for stocks with more frequent trading, greater return volatility, higher prices, smaller market capitalizations, and smaller trade sizes. We find that stocks with greater information-based trading and in more competitive trading environments exhibit faster quote adjustments. The speed of quote adjustment is faster after decimalization in both markets. These results are robust and not driven by differences in stock attributes between the two markets or time periods. Overall, our results indicate that stock attributes, market structure, and tick size exert a significant impact on the speed of quote adjustment.     

Information demand and stock market volatility

We study information demand and supply at the firm and market level using data for 30 of the largest stocks traded on NYSE and NASDAQ. Demand is approximated in a novel manner from weekly internet search volume time series drawn from the recently released Google Trends database. Our paper makes contributions in four main directions. First, although information demand and supply tend to be positively correlated, their dynamic interactions do not allow conclusive inferences about the information discovery process. Second, demand for information at the market level is significantly positively related to historical and implied measures of volatility and to trading volume, even after controlling for market return and information supply. Third, information demand increases significantly during periods of higher returns. Fourth, analysis of the expected variance risk premium confirms for the first time empirically the hypothesis that investors demand more information as their level of risk aversion increases.     

Information,trading and stock returns: Lessons from dually-listed securities

This paper compares the intra-day patterns on the NYSE and AMEX of volatility, trading volume and bid-ask spreads for European and Japanese dually-listed stocks with American stocks of comparable average trading volume and volatility. It is shown that the intra-day patterns for these stocks are remarkably similar even though public information flows differ markedly across these stocks during the trading day. In the early morning, all stocks have higher volatility than later in the day, but this phenomenon is most pronounced for Japanese stocks and affects American stocks the least. We argue that these patterns are consistent with markets reacting to the overnight accumulation of public information but are inconsistent with the view that early morning volatility can be attributed to monopolistic specialist behavior.     

Emerging from Bankruptcy with When‐Issued Trading

We examine the set of firms that emerged from Chapter 11 bankruptcy and traded on a when‐issued basis before their official return to the regular way in NASDAQ, Amex, or NYSE. We find that this when‐issued market is liquid and price efficient. The when‐issued closing price is a good indicator of the first closing price in the regular way market. Emerging firms that have when‐issued trading experience lower regular way volatility and smaller relative spreads than those without when‐issued trading. Our probit regressions show that firm size is an important determinant of the adoption of when‐issued trading.     

Preferenced Trading,Quote Competition,and Market Quality: Evidence from Decimalization on the NYSE

We examine the impact of decimalization on preferenced trading in NYSE‐listed stocks and show a significant decline in preferenced trading around decimalization. For the largest NYSE stocks, the total decline is nearly 22%. We also find a negative correlation between the changes in preferenced trading and the changes in quote competition intensity, and a positive correlation between the changes in preferenced trading and the changes in spreads. Consistent with the cream skimming hypothesis, we find that abnormal changes in information asymmetry cost for NYSE trades are positively correlated with the changes in preferenced trading.     

Short-term market reaction after extreme price changes of liquid stocks

In our empirical study we examine the dynamics of the price evolution of liquid stocks after experiencing a large intra-day price change, using data from the NYSE and the NASDAQ. We find a significant reversal for both intra-day price decreases and increases. Volatility, volume and, in the case of the NYSE, the bid–ask spread, which increase sharply at the event, stay significantly high days afterwards. The decay of the volatility follows a power law in accordance with the `Omori law'. While on the NYSE the large widening of the bid–ask spread eliminates most of the profits that can be achieved by an outside investor, on the NASDAQ the bid–ask spread stays almost constant, yielding significant short-term profits. The results thus give an insight into the size and speed of the realization of an excess return for providing liquidity in a turbulent market.     

Is information risk priced for NASDAQ-listed stocks?

Easley et al. (J Finance 57:2185–2221, 2002), building upon the asset pricing model of Fama and French (J Finance 47:427–465, 1992), show that the probability of informed trading (PIN) is a determinant of asset returns for NYSE-listed securities. We extend this work by examining whether the PIN is a predictive factor for NASDAQ stocks, as many studies document significant differences between NYSE and NASDAQ listed securities. In the process we examine whether the use of PIN is appropriate for NASDAQ-listed securities. We find that PIN and certain stock characteristics correlate differently for our sample of NASDAQ stocks than that of Easley et al. sample of NYSE stocks. We also determine that the risk of informed trading is only weakly priced for NASDAQ stocks. Contrary to Easley et al. we do not find evidence that excess returns increases as PIN increases.     

Causal and Dynamic Relationships among Stock Returns,Return Volatility and Trading Volume: Evidence from Emerging markets in South-East Asia

This paper examines the causal and dynamic relationships among stock returns, return volatility and trading volume for five emerging markets in South-East Asia—Indonesia, Malaysia, Philippines, Singapore and Thailand. We find strong evidence of asymmetry in the relationship between the stock returns and trading volume; returns are important in predicting their future dynamics as well as those of the trading volume, but trading volume has a very limited impact on the future dynamics of stock returns. However, the trading volume of some markets seems to contain information that is useful in predicting future dynamics of return volatility.     

Information-Based Trading and Price Improvement

Abstract:  In this study we test the information hypothesis of price improvement. Our results show that price improvement is negatively related to both the probability of information-based trading and the price impact of trades. We interpret these results as evidence that liquidity providers selectively offer price improvements according to the information content of trades. We also show that liquidity providers offer greater (and more frequent) price improvements when they are at the NBBO, and for stocks with wider spreads, fewer trades, or smaller trade sizes relative to the quoted depth. Buyer-initiated trades receive smaller (larger) price improvements than seller-initiated trades on the NYSE (NASDAQ).     

Regulation NMS and Market Quality

We show that both the quoted and effective spreads increased, the quoted depth decreased, and the market quality index decreased after the implementation of Regulation National Market System (NMS) (Reg NMS). We also find an increase in the price impact of trades and the dispersion of the pricing error after Reg NMS. The order execution speed is slower, the order fill rate is lower, and the order cancellation rate is higher for most trades after Reg NMS. Hence, contrary to the Securities and Exchange Commission's belief, Reg NMS has proven to be detrimental to most traders. NASDAQ provided faster and more reliable executions than the NYSE/AMEX, and NASDAQ gained market shares from the NYSE/AMEX and other trading venues after Reg NMS.     

RECENT GROWTH IN NASDAQ TRADING VOLUME AND ITS RELATION TO MARKET VOLATILITY

We document a significant increase in Nasdaq trading volume relative to New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) trading volumes. Although recent increases in the number of shares traded are reported in the financial press, we also find it present in the percentage of dollar values traded. We then examine correlations between trading volume and several measures of market volatility. Nasdaq volume appears to be more closely correlated with residual variance, while NYSE and AMEX volumes are more closely correlated with overall market variance. We conclude that the type and quantity of information driving trading are different on Nasdaq than on the two exchanges, and that the relative growth in Nasdaq volume cannot be attributed solely to differences in the methods of counting volume in the two market environments.     

Liquidity,Information, and Infrequently Traded Stocks

This article investigates whether differences in information-based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information-based trading for a sample of New York Stock Exchange (NYSE) listed stocks. We use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume-decile stocks. Our most important empirical result is that the probability of information-based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information-based trading on spreads.     

Can quote competition reduce preferenced trading? A reexamination of the SEC’s 1997 order handling rules

In 1997, the SEC implemented the new order handling rules (OHRs) on the NASDAQ. We observe that some uncompetitive positions gained market share without improving quote competitiveness after the implementation of the OHRs. Also observed is a significant decline in the sensitivity of trading volume to quote competitiveness, indicating lower incentive for NASDAQ dealers to engage in quote competition in the post‐OHR regime. We find that positions that gained trading volume without improving quote competitiveness were less competitive and were more closely associated with stocks showing low information asymmetry, which suggests that preferenced trading might be responsible for the decline in the trading volume sensitivity. Examining entries and exits around the periods of adopting OHRs, we observe net entry of uncompetitive positions and net exit of competitive positions, which indicates that preferenced trading crowded out quote competition subsequent to the OHRs. Our findings suggest that forcing intense quote competition alone produced an unwanted effect that preferencing emerged as a more attractive alternative to quote competition.     

Market structure and microstructure, in international interest rate futures markets

We examine the role of market structure in identifying microstructure features of the NYSE.Euronext-LIFFE STIR futures market by comparing the ability of two bid-ask spread component models to explain bid-ask spreads. These two models differ only in their assumptions about whether or not market makers are present. The period we analyze includes data from pit-based trading alongside electronic market data. We explore how market structure affects the way private information influences bid-ask spreads and return volatility. A second part of our study employs intraday correlation to investigate these links in greater depth, while a third part looks at how private information and trading noise contribute to price evolution.