Execution Qualities Under Financial Crisis : 2008 Financial Crisis Case

초록

This study examines the changes in market condition during the financial crisis. Adverse selection cost during the financial crisis forces dealers to widen the effective spreads across the exchanges. I attribute this result to the typical behavior of dealers to protect themselves from losing money to better-informed traders, because widened spreads effectively reduce the risk. However, this behavior is in conflict with the obligation of dealers to provide orderly and liquid market. To compensate for the increase in execution costs, dealers provide liquidity traders with more price improvements in numbers of shares covered, percentage shares, and dollar amount per share. Among dealers, NYSE specialists provide better execution qualities in times of financial crisis, and lose less.

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