Abstract
This paper uses unique NYSE audit trail data to evaluate spreads and information content for different order types. Actual spreads are positive for liquidity-demanding orders and negative for liquidity-supplying orders after controlling for order direction. However, because a large fraction of liquidity-demanding orders get price improvement, the actual spread for liquidity-demanding orders is up to 50 percent less than the Lee and Ready (1991) algorithm would suggest. Regression results show that the order composition of trades affects traditional measures of spreads and information. They also show that NYSE non-displayed liquidity reduces trading costs facing market orders, and that liquidity-demanding floor broker orders are the most informative order type.
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