A comparison of volatility and bid-ask spread for NASDAQ and NYSE after decimalization

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Abstract:

We compare volatility and transaction costs for National Association of Securities Dealers Automated Quotations (NASDAQ) and New York Stock Exchange (NYSE) firms after decimalization. Using the data of May 2001, our study includes several large samples are matched based on key determinants of volatility and transaction costs. Our findings suggest that volatility on NASDAQ is much higher than on NYSE even after the recent market reforms and decimalization. Transaction costs measured by quoted and effective spreads remain significantly higher on NASDAQ than on NYSE, and these differences cannot be attributed to the differences in the characteristics of the stocks traded in the two markets. In addition, the frequency of small (large) trades inside the quotes is significantly greater (lower) on NYSE than on NASDAQ.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840802600376

Affiliations: 1: Department of Finance, Fogelman College of Business and Economics, University of Memphis, Memphis, TN 38152-3120, USA 2: Department of Finance, Haile/US Bank College of Business, Northern Kentucky University, Highland Heights, KY 41099, USA

Publication date: April 1, 2011

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