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| Author: | Nimalendran, M. Petrella, G. |
| Title: | Do 'thinly-traded' stocks benefit from specialist intervention? |
| Journal: | Journal of Banking and Finance
2003 : SEP, VOL. 27:9, p. 1823-1854 |
| Index terms: | Stock markets Quality Trading |
| Language: | eng |
| Abstract: | This paper addresses the issue of the optimal trading system for less actively traded (i.e. 'thinly-traded') stocks. The paper compares the performance of a pure order driven market with limit order book (POD) with that of a hybrid order driven market with specialist and limit order book (HOD). It is found that the HOD system offers superior performance along several dimensions of market quality. In particular, the specialist-based system offers lower execution costs, greater depth, a significant increase in the depth-to-spread ratio, and lower adverse selection costs. Very 'thinly-traded' stocks benefit more than less inactive stocks from the adoption of a hybrid trading system both in terms of greater liquidity and in terms of lower adverse selection costs. |
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