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Not Held Orders: Evidence on the Value of Order Timing in an Equity Market

This paper assesses the value of order timing in equity trading, with particular focus on the working of "not held" orders by floor brokers. To this end, we examine trades on the American Stock Exchange (Amex) using October 1996 proprietary trade and quote data for 838 stocks. Recognizing that access costs to the floor are relatively high, we compare the temporary price impact of orders handled by floor brokers with that of orders entered through the Amex's Post Execution Reporting (PER) system. We find that orders handled by floor brokers have a smaller temporary price impact than do PER orders (on average, 1.45 cents per share versus 3.29 cents per share). We also find that orders placed on the trading floor have higher information content, as measured by the permanent price impact of orders (on average, 5.90 cents per share versus 3.27 cents per share). The findings have implications for the development of electronic trading platforms for institutional participants concerned with controlling the market impact of their large orders.