Competition For Order Flow, Market Quality, And Price Discovery In The Nasdaq 100 Index Tracking Stock

Yiuman Tse · Grigori Erenburg

39 citations0/0 files storedThe Journal of Financial Research

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Financial Markets and Investment Strategies Corporate Finance and Governance Finance, Markets, and Regulation

Abstract

Abstract We investigate competition for order flow, market quality, and price discovery in the Nasdaq 100 Index Tracking Stock (QQQ). The QQQ, an AMEX‐listed, exchange‐traded fund, is the most actively traded security in the U.S. equities market. On July 31, 2001, the NYSE began trading the QQQ, marking the first time it traded securities of companies it does not list. The greatest volume of trading takes place on electronic communication networks (ECNs), following by trading on the AMEX and the NYSE. Most of the block trades are executed on the AMEX, where the bid‐ask spreads are narrower. We find that ECNs contribute the most to the price‐discovery process. The spreads on all trading platforms have decreased and market quality and price discovery have improved since QQQ shares have traded on the NYSE.

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1991Inferring Trade Direction from Intraday Data 1988Testing for Common Trends 1995One Security, Many Markets: Determining the Contributions to Price Discovery 1980On the Estimation of Security Price Volatilities from Historical Data 1988Liquidity and Market Structure 1995Estimation of Common Long-Memory Components in Cointegrated Systems 1993Spreads, Depths, and the Impact of Earnings Information: An Intraday Analysis 1996The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects

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