An Analysis of Individual NYSE Specialist Portfolios and Execution Quality

Abstract

The value of specialist assistance to the trading of low-volume stocks has important implications in exchange design. We study the relation between the structure of individual specialist portfolios and the transitory volatility of low-volume stocks in these portfolios under the traditional NYSE auction-dealer market structure. We find that the trading quality for inactive stocks is positively related to the trading volume of active stocks in the same specialist portfolios. These results are consistent with specialist subsidization of low-volume stocks in their portfolios and suggest that specialists provide important support to the trading of inactive stocks if they have the resources. Copyright (c) 2009, The Eastern Finance Association.

Limit Order Book and Commonality in Liquidity

“…For example, Coughenour and Saad (2004) suggest that the specialist portfolio can explain about one‐eighth of the stock‐level liquidity change. Liu (2009) shows that the trading quality of inactive stocks benefits from being in the same specialist portfolio with high‐volume stocks. Harford and Kaul (2005) find that the order imbalance comovement generated by index trading contributes to the commonality in liquidity, but mostly for Standard and Poor (S&P) 500 constituents.…”

Your mileage may vary

“…Other examples of dynamic withdrawal strategies include adjusting the withdrawal rate based on portfolio performance and remaining life expectancy to improve retirement portfolio success and average lifetime withdrawal rates (Stout & Mitchell, 2006); using a multiasset portfolio with periodic adjustments to the asset mix and a "bonds first" withdrawal strategy that mitigates the higher volatility in equity returns (Liu, Chang, De Jong, & Robinson, 2009); and calculating the probability of portfolio failure each year and changing the withdrawal rate based on decision rules (Blanchett & Frank, 2009).…”

Saving for retirement while having more nights with peaceful sleep

“…Where is the correlation between the returns of the equity portfolio and the returns of the fixed income portfolio. In the simulations we use a diversified equity portfolio for equity allocation with 45% invested in the S&P 500 Index, 30% invested in the Russell 2000 Index, and 25% invested in the MSCI EAFE Index, following Liu, Chang, De Jong, and Robinson (2009). For the fixed income holding we use a 10-year U.S. Treasury bond.…”