Preferenced Trading, Quote Competition, and Market Quality: Evidence from Decimalization on the NYSE

Wei Huang, S. Ghon Rhee and Ning Tang

The Financial Review, 2010, vol. 45, issue 3, 523-540

Abstract: We examine the impact of decimalization on preferenced trading in NYSE‐listed stocks and show a significant decline in preferenced trading around decimalization. For the largest NYSE stocks, the total decline is nearly 22%. We also find a negative correlation between the changes in preferenced trading and the changes in quote competition intensity, and a positive correlation between the changes in preferenced trading and the changes in spreads. Consistent with the cream skimming hypothesis, we find that abnormal changes in information asymmetry cost for NYSE trades are positively correlated with the changes in preferenced trading.

Date: 2010
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