The impact of preferencing on execution quality [An article from: Journal of Financial Markets]

This digital document is a journal article from Journal of Financial Markets, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
We examine the impact of preferencing on execution quality for NASDAQ and NYSE-listed stocks. Our theoretical model demonstrates that realized spreads are more reliable than effective spreads in the presence of preferencing, but even realized spreads are a poor measure of execution quality if the stocks being compared have different degrees of information asymmetry. We provide a new measure of the costs of preferencing that is independent of asymmetric information. Using data from the SEC 11Ac1-5 reports for marketable orders of up to 2000 shares, we find that both realized spreads and our preferencing measure are lower for NYSE-listed stocks.