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In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets

In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets We analyze the ability of various market mechanisms to provide liquidity for large equity trades. Using data on 21,077 block transactions in Dow Jones stocks, we find that the “downstairs” NYSE floor market is a significant source of liquidity. Although negotiation in the informal “upstairs” market provides better execution than the downstairs market for large trades, these differences are economically small. We find, however, that upstairs markets are used by traders who can credibly signal that their trades are liquidity motivated. Thus, upstairs markets allow trades that may not otherwise occur. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets

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References (19)

Publisher
Oxford University Press
Copyright
Oxford University Press
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/10.1.175
Publisher site
See Article on Publisher Site

Abstract

We analyze the ability of various market mechanisms to provide liquidity for large equity trades. Using data on 21,077 block transactions in Dow Jones stocks, we find that the “downstairs” NYSE floor market is a significant source of liquidity. Although negotiation in the informal “upstairs” market provides better execution than the downstairs market for large trades, these differences are economically small. We find, however, that upstairs markets are used by traders who can credibly signal that their trades are liquidity motivated. Thus, upstairs markets allow trades that may not otherwise occur.

Journal

The Review of Financial StudiesOxford University Press

Published: Jan 4, 1997

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