International Finance Discussion Papers

<p>I establish stylized empirical facts about the trading behavior of New York Stock Exchange specialists. Specifically I look at the effect of future price movements the specialist's explicit role and the specialist's inventory levels on specialist trading behavior. The motivation for this empirical study is to infer whether the specialist behaves like an active investor who has an information advantage which he obtains while acting as a broker for other traders. If this were the case one would expect that the specialist would engage in a profit maximizing strategy buying low and selling high which is opposite to the prediction of the traditional inventory model. I find that specialists behave like active investors who seek to buy stocks when prices are low and to sell when prices are high. I also find that when specialists are not performing their trading obligations of being on the opposite side of the market they are in almost 85 percent of their trades buying low and selling high. The findings of this paper indicate that the NYSE specialist is best represented in theoretical models as a constrained profit maximizing informed investor rather than as a zero profit trader.</p><p>This work has been selected by scholars as being culturally important and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact and remains as true to the original work as possible. Therefore you will see the original copyright references library stamps (as most of these works have been housed in our most important libraries around the world) and other notations in the work.</p><p>This work is in the public domain in the United States of America and possibly other nations. Within the United States you may freely copy and distribute this work as no entity (individual or corporate) has a copyright on the body of the work.</p><p>As a reproduction of a historical artifact this work may contain missing or blurred pages poor pictures errant marks etc. Scholars believe and we concur that this work is important enough to be preserved reproduced and made generally available to the public. We appreciate your support of the preservation process and thank you for being an important part of keeping this knowledge alive and relevant.</p>