文档介绍：peting Specialists
and Preferencing Dealers
Affect Market Quality?
Robert Battalio
University of Notre Dame
Jason Greene
ia State University
Robert Jennings
Indiana University
We empirically demonstrate that the opportuni-
ties the Boston Stock Exchange and the Cincin-
nati Stock Exchange offer members to take the
other side of their customers’ orders through
affiliated market makers (to internalize orders)
have little short-run effect on posted or effective
bid-ask spreads. This is true despite substantial
movement of order flow away from the New York
Stock Exchange when trading under one of these
regional stock exchange programs begins. These
results contrast with the adverse effects of mar-
ket fragmentation and internalization predicted
by some theoretical market microstructure anal-
yses and the popular financial press.
Individuals interested in market structure have long
debated whether trading should be concentrated on
We thank the Boston Stock Exchange, the Cincinnati Stock Exchange,
and the New York Stock Exchange for providing data. We thank the fol-
lowing ments: Frederick Harris, Frank Hatheway, Craig Holden,
Ravi Jagannathan (the editor), Marc Lipson, Cathy Niden, Megan Partch,
S. Viswanathan, two anonymous referees, and participants at the Indi-
ana University Symposium on anization of Financial Trade and
Exchange Mechanism, the University of petition for Order
Flow Conference, the Ohio State University Dealer Markets Conference,
the 1997 American Finance Association, and the finance workshop series
at Notre Dame University, DePaul University, and the University of Okla-
homa. Address correspondence to Robert Battalio, Department of Finance
and Business Economics, College of Business, 239 Business Administration,
University of Notre Dame, Notre Dame, IN 46556-0399.
The Review of Financial Studies Winter 1997 Vol. 10, No. 4, pp. 969–993
c 1997 The Review of Financial Studies 0893-9454/97/$
The Review of Financial