The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Price Discovery without Trading: Evidence from the Nasdaq Preopening
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00249
Charles Cao, Eric Ghysels, Frank Hatheway
This paper studies Nasdaq market makers' activities during the one and one‐half hour preopening period. Price discovery during the preopening is conducted via price signaling as opposed to the auction used to open the NYSE or the continuous market used during trading. In the absence of trades, Nasdaq dealers use crossed and locked inside quotes to signal to other market makers which direction the price should move. Furthermore, we find evidence of price leadership among market makers that bears little resemblance to their IPO/SEO lead underwriter participation.
Does the Specialist Matter? Differential Execution Costs and Intersecurity Subsidization on the New York Stock Exchange
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb01123.x
CHARLES CAO, HYUK CHOE, FRANK HATHEWAY
This article tests for differences in execution costs among specialist firms for New York Stock Exchange listed securities. Execution cost differences provide a measure of the relative performance of specialist firms. We find a substantial difference in effective spreads and order processing costs across specialist firms, controlling for stock characteristics. While economically significant, the differences in execution costs between specialist firms are much smaller than the cross‐market differences reported by Huang and Stoll (1996). Within a specialist firm, there is a positive relation between order processing costs and trading activity that is consistent with the hypothesis that active stocks subsidize inactive stocks.