Title

The value of the specialist: Empirical evidence from the CBOE

Authors

Authors

A. Anand;D. G. Weaver

Comments

Authors: contact us about adding a copy of your work at STARS@ucf.edu

Abbreviated Journal Title

J. Financ. Mark.

Keywords

specialists; market makers; bid-ask spreads; options; competition; TRADE EXECUTION COSTS; EQUITY OPTIONS; AUCTION MARKETS; NASDAQ; NYSE; COMPETITION; SPREADS; Business, Finance

Abstract

Using intraday options data, this paper analyzes the "natural experiment" of the Chicago Board Options Exchange (CBOE) superimposing a specialist system on an existing multiple market maker system during 1999. We find support for the demand uncertainty literature which states that specialists are better able to resolve uncertainty about investor preferences. In particular, we find that quoted, current, and effective spreads decrease following the specialist system adoption. This translates into a $221 million annual savings for investors. We further find that following the switch, the market share of the CBOE increases significantly, suggesting that specialists use spreads to attract order flow. (c) 2006 Elsevier B.V. All rights reserved.

Journal Title

Journal of Financial Markets

Volume

9

Issue/Number

2

Publication Date

1-1-2006

Document Type

Article

Language

English

First Page

100

Last Page

118

WOS Identifier

WOS:000237997300002

ISSN

1386-4181

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