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New York Stock Exchange Definition
The New York Stock Exchange is the oldest stock exchange in the United States located at 11 Wall Street, Lower Manhattan, New York City, New York. It was founded in 1792 and by far the largest stock exchange in the world based on the market capitalization of its listed companies and second largest in terms of the number of companies listed.
A Little More on What is the New York Stock Exchange
The New York Stock Exchange is presently owned by the American company Intercontinental Exchange. The NYSE is also commonly known as the Big Board.
The building located at 11 Wall Street consists of 21 rooms facilitating stock trade. The main building of the NYSE was located at 18 Broad Street. Both of these buildings were declared as the historical landmarks in 1978.
There are about 2300 firms listed on the New York Stock Exchange including largest US and non-US companies with a total market capitalization of about 21 trillion. Since the 1990s, the daily share volume of the NYSE is less than that of NASDAQ, but its total market capitalization is 5 times more than NASDAQ.
How the NYSE Works
For a long time, the NYSE only conducted floor trading using open outcry system. At present, although many companies have transitioned to the electronic system, the pricing is still set by the floor traders. They also deal in high volume institutional trading.
The trading starts at 9.30 am ET with a ring of the opening bell and closes at 4.00 pm ET with a closing bell on all working days. Monday to Friday is considered to be the working days for the Exchange. The trading is closed on the federal holidays and if a federal holiday is on a Saturday the NYSE is sometimes closed on the preceding Friday and if it is a Sunday it may be closed on the following Monday.
Several mergers and acquisition happened in the history of the New York Stock Exchange. In 2013, the Intercontinental Exchange purchased the NYSE with $11 billion.
The NYSE was first conceived on May 17, 1792, by 24 stockbrokers from New York City. They signed the Buttonwood agreement at 68 wall street and the trading was started with five securities, including three government bonds and two bank stocks.
The NYSE has faced various lawsuits regarding fraud and breach of duty throughout the history. On May 1, 2014, it was subjected to $4.5 million fine by the Securities and Exchange Commission for violating market rules.
References for New York Stock Exchange
Academic Research on the New York Stock Exchange (NYSE)
An investigation of transactions data for NYSE stocks, Wood, R. A., McInish, T. H., & Ord, J. K. (1985). The Journal of Finance, 40(3), 723-739. This paper shows the behavior of returns and characteristics of trades at the micro level. A normality and autocorrelation analysis was conducted by forming a minute-by-minute market return series. The differences in return distribution are gotten from the trades during the first 30 minutes immediately after the market opening, trades during the close period, overnight trades, and trades during the remaining market hour for the day. From the analysis of the return distribution done, the distribution gotten from trades during the remainder of the day was normal; high returns and standard deviations of returns are found at the beginning and end of the market day. Excluding the beginning and the end of the market day, autocorrelation in the market return series got substantially reduced.
The relationship between earnings’ yield, market value and return for NYSE common stocks: Further evidence, Basu, S. (1983). Journal of financial economics, 12(1), 129-156. This paper shows the empirical relationship between earnings’ yield, firm size and the return on NYSE firms. The result clearly shows the significant effect of the common stock of high E/P firms earn on average with higher risk-adjusted returning higher than the common stock of low E/P firms even if experimental control is used over differences in firm size. Though the common stock of small NYSE firms gives higher returns than common stock of large NYSE firms when he returns for differences in the risk and E/P ratios are controlled, the size effect disappears. This implies that the firm size is partly a function of E/P effect and the effect of these variables is considered much more complicated on expected returns beyond the documented literature.
An analysis of intraday patterns in bid/ask spreads for NYSE stocks, McInish, T. H., & Wood, R. A. (1992). the Journal of Finance, 47(2), 753-764. The characterized behavior of time-weighted bid-ask spreads over the trading days was studied in this paper using the crude reversed J-shaped pattern. The plot of minute-by-minute spreads versus time of the trading was used as the variables. The four determinants of spreads according to Schwartz that is, activity, competition, risk, and information were also studied. The demonstration of the linear regression model shows the relationship between these four determinants with the dummy variables for the time of the trading day having reverse J-shape. Spreads were higher at the beginning and end of the day compared to the interior period for the given values of the four determinants.
Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE, Huang, R. D., & Stoll, H. R. (1996). Journal of Financial economics, 41(3), 313-357. The effective spread, the realized spread, the role implied spread; the post-trade variability and the quoted spread are all variables in the execution cost function. The realized spread is used to measure the revenues of immediate suppliers while the effective spread accounts for the trades inside the quotes. The execution costs measured with these five determinants are as twice as large for a NASDAQ stocks’ sample as they are for a matched sample of NYSE stocks. This difference is not due to the frequency of seven-eight quotes neither is it in the market depth nor as a result of differences in adverse information. Little explanations of the differences in the treatment of limit orders and commissions in the two markets were also provided.
Why do security prices change? A transaction-level analysis of NYSE stocks, Madhavan, A., Richardson, M., & Roomans, M. (1997). The Review of Financial Studies, 10(4), 1035-1064. This paper examines, develops and tests a structural model formation of the intraday price that governs microstructure effects and public information shock. The model used in this research was to construct metrics for price discovery and effective trading costs as well as analyzing intraday patterns in bid-ask spreads, transaction, costs, price fluctuation, and return and quote autocorrelations. As the transaction cost increases, so also does the uncertainty and asymmetry over the basics decreases over the day. The result gotten confirms the U-shaped pattern in intraday bid-ask spreads and volatility and also helps explain the intraday decline in the ask-price changes variation.
Dividend policy and financial distress: An empirical investigation of troubled NYSE firms, DeAngelo, H., & DeAngelo, L. (1990). The Journal of Finance, 45(5), 1415-1431. Multiple losses of NYSE firms were recorded from 1980 to 1985. This loss leads to the policy adjustment of NYSE to protract financial distress. This article examines the dividend policy adjustment of 80 NYSE firms to protracted financial distress. More than half of these firms faced binding debt covenant, and most of them reduced dividends. Dividends are cut in most cases rather than omitting them in absent of bind debt covenants. This implies that the administration feels reluctance in the omission but not to the reduction of dividends. Though, managers of firms having long records of dividends seem reluctant to dividend omission.
Eighths, sixteenths, and market depth: changes in tick size and liquidity provision on the NYSE, Goldstein, M. A., & Kavajecz, K. A. (2000). Journal of Financial Economics, 56(1), 125-149. This is research done to examine the impact of reducing the minimum tick size on the liquidity of the market while putting the limit order data provided by the NYSE in use. As quoted in the limit order book, both depth and spreads declined after the NYSE’s moved from eights to sixteenths. The depth declined continuously throughout the order book. Summing the effect of the smaller spreads and that of the reduced cumulative limit order book depth makes convert the small orders to better tradeoffs by the liquidity demanders. This did not include profit traders that submitted larger orders in lower volume stocks, most especially the low priced stocks.
The trades of market makers: An empirical analysis of NYSE specialists, Hasbrouck, J., & Sofianos, G. (1993). The Journal of Finance, 48(5), 1565-1593. This article studies the empirical analysis of the trading activities of the New York Stock Exchange (NYSE) and presents a transaction level equivalent model. The followings are the major findings gotten from the study, and these are adjustment lag in inventories which may last for one or more months. The principal source of the profits gotten from the decomposition of specialist trading profits by trading horizon is short term. The analysis of the signed order of flow, dynamic relation among inventories, and quote changes shows that trades that have a specialist as a participant shows a higher immediate impact on the quotes than trades with no specialist participant.
Lifting the veil: An analysis of pre‐trade transparency at the NYSE, Boehmer, E., Saar, G., & Yu, L. (2005). The Journal of Finance, 60(2), 783-815. The introduction part of the OpenBook service helps in providing limit order book information to traders off the exchange floor. This paper examines the transparency of the pre-trade at the NYSE. The traders attempt to manage limit-order exposure was discovered as they submit smaller orders and also cancel orders faster. It was also observed that the depths added to the quote by specialists declined, and this was traced to the decrease in the specialists’ participation rate. Some improvement was found in the price information efficiency, but liquidity increase as the price impact of orders decrease.
Market integration and price execution for NYSE‐listed securities, Lee, C. M. (1993). The Journal of Finance, 48(3), 1009-1038. By location, the price executions of closely comparable orders are not the same systematically in the New York Stock Exchange (NYSE) listed security. Generally, executions are done by trade initiators at the Cincinnati, Midwest, and New York stock exchanges are the most favorable but the least favorable executions are those from the National Association of Security dealers. Trade size has a considerable effect on the inter-market price difference as the smallest trades depicting the biggest per share difference in price. The collective result in the analysis done gives rise to questions about the broker’s fiduciary responsibility on best execution, the propriety of order flow inducement, and the adequacy of the existing inter-market quote system (ITS).
A cross-exchange comparison of execution costs and information flow for NYSE-listed stocks, Bessembinder, H., & Kaufman, H. M. (1997). Journal of Financial Economics, 46(3), 293-320. This research examines the costs of trades in NYSE problems or challenges completed on the regional stock exchanges during 1994, the NASD dealer market and the NYSE. NYSE effective bid-ask spreads are only slightly smaller while their realized bid-ask spreads (which measure a market-making revenue net of losses) to well-informed traders but the gross other processing costs are reduced by a factor of two to three on the NYSE. This paper further empowers and backs up the existing concerns about whether the rest are routed to receive the best execution.