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Do competing specialists and preferencing dealers affect market quality? |
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| Authors: | Battalio, R Greene, J Jennings, R |
| Affiliation: | 1 Georgia State University, GA, USA 2 Indiana University, IN, USA z Corresponding author at: Department of Finance and Business Economics, College of Business, 239 Business Administration, University of Notre Dame, Notre Dame, IN 46556-0399, USA |
| Abstract: | We empirically demonstrate that the opportunities the BostonStock Exchange and the Cincinnati Stock Exchange offer membersto take the other side of their customers' orders through affiliatedmarket makers (to internalize orders) have little short-runeffect on posted or effective bid-ask spreads. This is truedespite substantial movement of order flow away from the NewYork Stock Exchange when trading under one of these regionalstock exchange programs begins. These results contrast withthe adverse effects of market fragmentation and internalizationpredicted by some theoretical market microstructure analysesand the popular financial press. |
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