The Journal of Finance

Liquidity Provision and the Organizational Form of NYSE Specialist Firms

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00444

Jay F. Coughenour, Daniel N. Deli

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.

Limited Attention and the Allocation of Effort in Securities Trading

Published: 11/11/2008   |   DOI: 10.1111/j.1540-6261.2008.01420.x

SHANE A. CORWIN, JAY F. COUGHENOUR

While limited attention has been analyzed in a variety of economic and psychological settings, its impact on financial markets is not well understood. In this paper, we examine individual NYSE specialist portfolios and test whether liquidity provision is affected as specialists allocate their attention across stocks. Our results indicate that specialists allocate effort toward their most active stocks during periods of increased activity, resulting in less frequent price improvement and increased transaction costs for their remaining assigned stocks. Thus, the allocation of effort due to limited attention has a significant impact on liquidity provision in securities markets.

Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure

Published: 03/01/1995   |   DOI: 10.1111/j.1540-6261.1995.tb05178.x

HENDRIK BESSEMBINDER, JAY F. COUGHENOUR, PAUL J. SEGUIN, MARGARET MONROE SMOLLER

We use the term structure of futures prices to test whether investors anticipate mean reversion in spot asset prices. The empirical results indicate mean reversion in each market we examine. For agricultural commodities and crude oil the magnitude of the estimated mean reversion is large; for example, point estimates indicate that 44 percent of a typical spot oil price shock is expected to be reversed over the subsequent eight months. For metals, the degree of mean reversion is substantially less, but still statistically significant. We detect only weak evidence of mean reversion in financial asset prices.