文档介绍：In Search of Liquidity:
Block Trades in the Upstairs
and Downstairs Markets
Ananth Madhavan
University of Southern California
Minder Cheng
Salomon Brothers Asia
We analyze the ability of various market mech-
anisms to provide liquidity for large equity
trades. Using data on 21,077 block transactions
in Dow Jones stocks, we find that the “down-
stairs” NYSE floor market is a significant source
of liquidity. Although negotiation in the infor-
mal “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.
Liquidity is an essential attribute for equity markets to
function as a source of capital for corporations and
provide investment and diversification opportunities
M. Cheng was an employee of the New York Stock Exchange and A. Madha-
van was the visiting research economist at the New York Stock Exchange
when this research was undertaken. We thank Jim Booth, Hua He, Don
Keim, Robert Korajczyk (the editor), Hayne Leland, David Mayers, Mark
Rubinstein, Duane Seppi, Jim Shapiro, e Sofianos, Richard Stanton,
and an anonymous referee for their ments. Seminar participants
at Arizona State University, Berkeley, the 1995 Western Finance Association
Meetings, the Conference on Accounting and Financial Economics at the
University of Michigan, and Vanderbilt University provided many valuable
suggestions. Any errors are entirely our own. In particular, ments
and opinions contained in this article are those of the authors and do not
necessarily reflect those of the directors, members, or officers of the New
York Stock Exchange, Inc. Please address all correspondence to Ananth
Madhavan, School of Business Administration, 701 Hoffman Hall, Univer-
sity of Southern California, Los Angeles, CA 900