A COMPARISON OF TRADE EXECUTION COSTS FOR NYSE AND NASDAQ-LISTED STOCKS

We compare average trade execution costs during 1994 for sets of large , medium, and small capitalization stocks listed on the New York and N ASDAQ stock markets. All measures of execution costs examined, includi ng quoted bid-ask spreads, effective spreads (which allow for executio ns within the quotes), and realized spreads (which measure price rever sal after trades), are larger for NASDAQ-listed than for NYSE-listed s tocks. The differentials in average trading costs across exchanges are greater for medium and small capitalization issues than for large cap italization stocks and are greater fbr small compared to large trades. These differentials cannot be attributed to cross-exchange difference s in the adverse selection costs of market-making. Furthermore, we fin d no evidence that average execution costs on NASDAQ declined after th e publicized events of May 1994.