No abstract

No abstract

No abstract

In October 2000, the Securities and Exchange Commission (SEC) passed Regulation Fair Disclosure (FD) in an effort to reduce selective disclosure of material information by firms to analysts and other investment professionals. We find that the information asymmetry reflected in trading costs at earnings announcements has declined after Regulation FD, with the decrease more pronounced for smaller and less liquid stocks. Return volatility around mandatory announcements is also lower but overall information flow is unchanged when mandatory and voluntary announcements are combined. Thus, the SEC appears to have diminished the advantage of informed investors, without increasing volatility.

A global trend towards automated trading systems raises the important question of whether execution costs are, in fact, lower than on trading f loors. This paper compares the trade execution costs of similar stocks in an automated trading structure~Paris Bourse! and a f loor-based trading structure~NYSE!. Results indicate that execution costs are higher in Paris than in New York after controlling for differences in adverse selection, relative tick size, and economic attributes across samples. These results suggest that the present form of the automated trading system may not be able to fully replicate the benefits of human intermediation on a trading f loor.A TRADING MECHANISM IS DEF INED by the distinctive set of rules that govern the trading process. The rules dictate when and how orders can be submitted, who may see or handle the orders, how orders are processed, and how prices are set~see O'Hara~1995!!. The rules of trading affect the profitability of various trading strategies~see Harris~1997!!, and hence affect trader behavior, price formation, and trading costs. A fundamental question in securities market design is the link between the rules of the trading mechanism and the cost of trade execution. Numerous studies have investigated this issue by comparing bid-ask spreads in the auction-based New York Stock Exchange~NYSE! and the dealer-based Nasdaq. 1 While much of the debate centers on the relative merits of auction and dealer markets, an alternative

We study trading costs and dealer behavior in U.S. corporate bond markets from 2006 to 2016. Despite a temporary spike during the financial crisis, average trade execution costs have not increased notably over time. However, dealer capital commitment, turnover, block trade frequency, and average trade size decreased during the financial crisis and thereafter. These declines are attributable to bank‐affiliated dealers, as nonbank dealers have increased their market commitment. Our evidence indicates that liquidity provision in the corporate bond markets is evolving away from the commitment of bank‐affiliated dealer capital to absorb customer imbalances, and that postcrisis banking regulations likely contribute.

No abstract

We contribute to the literature on the performance of financial intermediaries. Using a unique dataset of institutional investors" equity transactions, we document that institutional trading desks can sustain relative performance over adjacent periods. We investigate several possible explanations for trading cost persistence including broker selection, investment style, and commissions, and identify a set of trading decisions that are associated with performance. Our findings support the presence of skilled traders who can create positive (investment) alpha through their trading strategies. The substantial and persistent differences in institutional trading costs are large enough to significantly contribute to mutual fund performance persistence. We find that past broker performance can reliably predict future performance suggesting that broker selection based on past performance is an important dimension of money manager"s fiduciary obligation. AbstractWe contribute to the literature on the performance of financial intermediaries. Using a unique dataset of institutional investors" equity transactions, we document that institutional trading desks can sustain relative performance over adjacent periods. We investigate several possible explanations for trading cost persistence including broker selection, investment style, and commissions, and identify a set of trading decisions that are associated with performance. Our findings support the presence of skilled traders who can create positive (investment) alpha through their trading strategies. The substantial and persistent differences in institutional trading costs are large enough to significantly contribute to mutual fund performance persistence. We find that past broker performance can reliably predict future performance suggesting that broker selection based on past performance is an important dimension of money manager"s fiduciary obligation.