Institutional Equity Trading Costs: NYSE Versus Nasdaq




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    • University of Illinois at Urbana-Champaign. We have received many helpful comments from an anonymous referee, Gil Beebower, Gene Finn, Vasant Kamath, René Stulz (the editor) and seminar participants at Indiana University, the 1994 Memphis State University Conference on The Competition for Order Flow, and the University of Illinois. Peng Tu provided outstanding research assistance. We thank the National Association of Securities Dealers for their support of this research; the National Center for Supercomputing Applications, University of Illinois at Urbana-Champaign, for partial computing support; and SEI Corporation for supplying the data. We retain sole responsibility for the viewpoints expressed in this article.


We compare execution costs (market impact plus commission) on the New York Stock Exchange (NYSE) and Nasdaq for institutional investors. The differences in cost generally conform to each market's area of specialization. Controlling for firm size, trade size, and the money management firm's identity, costs are lower on Nasdaq for trades in comparatively smaller firms, while costs for trading the larger stocks are lower on NYSE. The cost differences estimated from a regression model are, however, sensitive to the choice of time period.