Trading and Pricing in Upstairs and Downstairs Stock Markets

G. Geoffrey Booth; Ji-chai Lin; Teppo Martikainen; Yiuman Tse

Trading and Pricing in Upstairs and Downstairs Stock Markets

G. Geoffrey Booth, Ji-chai Lin, Teppo Martikainen, Yiuman Tse

Research output: Journal article publication › Journal article › Academic research › peer-review

Abstract

We provide empirical evidence on the economic benefits of negotiating trades in the upstairs trading room of brokerage firms relative to the downstairs market. Using Helsinki Stock Exchange data, we find that upstairs trades tend to have lower information content and lower price impacts than downstairs trades. This is consistent with the hypotheses that the upstairs market is better at pricing uninformed liquidity trades and that upstairs brokers can give better prices to their customers if they know the unexpressed demands of other customers. We find that these economic benefits depend on price discovery occurring in the downstairs market.

Original language	English
Pages (from-to)	1111-1135
Number of pages	25
Journal	Review of Financial Studies
Volume	15
Issue number	4
Publication status	Published - 1 Sept 2002
Externally published	Yes

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

Cite this

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title = "Trading and Pricing in Upstairs and Downstairs Stock Markets",

abstract = "We provide empirical evidence on the economic benefits of negotiating trades in the upstairs trading room of brokerage firms relative to the downstairs market. Using Helsinki Stock Exchange data, we find that upstairs trades tend to have lower information content and lower price impacts than downstairs trades. This is consistent with the hypotheses that the upstairs market is better at pricing uninformed liquidity trades and that upstairs brokers can give better prices to their customers if they know the unexpressed demands of other customers. We find that these economic benefits depend on price discovery occurring in the downstairs market.",

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AB - We provide empirical evidence on the economic benefits of negotiating trades in the upstairs trading room of brokerage firms relative to the downstairs market. Using Helsinki Stock Exchange data, we find that upstairs trades tend to have lower information content and lower price impacts than downstairs trades. This is consistent with the hypotheses that the upstairs market is better at pricing uninformed liquidity trades and that upstairs brokers can give better prices to their customers if they know the unexpressed demands of other customers. We find that these economic benefits depend on price discovery occurring in the downstairs market.

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Trading and Pricing in Upstairs and Downstairs Stock Markets

Abstract

ASJC Scopus subject areas

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