Information, Execution Quality, and Order Routing Decisions on NASDAQ

Prior research indicates that both execution speed and cost are important to traders, but that these two dimensions of execution quality are negatively related across U.S. equity markets. In our paper, we examine how U.S. equity traders, who are (un)informed about future price changes, trade-off between speed and cost in their order-routing decisions. We find that informed traders are more likely to choose trading systems that allow them to trade-off lower cost for faster speed, whereas uninformed traders are more likely to choose trading systems that allow them to sacrifice speed for lower costs. Our results indicate that traders have varying preferences for the different dimensions of execution quality based on their information levels. These differences subsequently influence order-routing decisions