Leveling the trading field

We examine the impact on stock prices of a major upgrade to the New York Stock Exchange's trading environment. The upgrade improved information dissemination on the trading floor and reduced the latency in reporting trades and quotes. The portion of the upgrade that reduced latency for electronic orders had significant impacts on liquidity, turnover, and returns. A portfolio that is long stocks undergoing the upgrade in the first 20 days of the upgrade and short stocks receiving the upgrade later has a return of roughly 3% over the period. The abnormal return was a priced effect of the improved liquidity produced by the upgrade.