UPSTAIRS OR DOWNSTAIRS - THE BROKER'S CHOICE

In this project we build and test a formal model for the broker's decision to execute an order either "downstairs" on the trading floor, or then "upstairs" as an internal trade between the broker's customers or as a prenegotiated trade with another broker which is afterwards reported to the exchange. The model builds on recently developed theory of switching costs. In the project we employ a unique data set consisting of all trades executed on the Helsinki Stock Exchange in a given time period.