Trading Costs and Volatility for Technology Stocks

Abstract

Evidence on trade-execution costs and market quality for heavily traded technology stocks indicates that trading costs for these stocks are substantially lower on the NYSE than on Nasdaq. We report that for the full sample and two-year period of our test, quoted percentage bid–ask half-spreads were 11.8 basis points wider and effective bid–ask half-spreads were 11.3 basis points wider on Nasdaq. We also document that Nasdaq executes a substantially larger fraction of trades outside the quotations. Finally, we found returns on Nasdaq technology stocks to be more volatile than returns on NYSE technology stocks; the median standard deviation of daily returns was 51 percent larger for Nasdaq-traded companies.