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Trade size clustering and the cost of trading at the London Stock Exchange

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  • Verousis, Thanos
  • ap Gwilym, Owain

Abstract

For the London Stock Exchange, this paper investigates differences in trading costs between market maker (off-book) and order book trades, in the context of clustering in trade sizes and prices. We report several substantial findings. Even after controlling for differences in trade size, the realised spread measure is lower for off-book trades. For the order book, trade size clustering is not associated with differences in transaction costs nor with differences in the information content of trades. For the off-book market, trades in clustered (popular) sizes carry significantly more information than non-clustered trades. Despite the significant differences in the price impact estimates between the order book and off-book, we show that traders placing large orders off-book are still better off than trading via the order book as they benefit from a large discount from the current midpoint price. Additionally, we highlight that price and size clustering tend to occur simultaneously rather than being substitutes in this market setting.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 27 (2013)
Issue (Month): C ()
Pages: 91-102

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Handle: RePEc:eee:finana:v:27:y:2013:i:c:p:91-102

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Web page: http://www.elsevier.com/locate/inca/620166

Related research

Keywords: Trade-size clustering; Transaction costs; Price impact; LSE;

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References

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  14. ap Gwilym, Owain & Verousis, Thanos, 2010. "Price clustering and underpricing in the IPO aftermarket," International Review of Financial Analysis, Elsevier, Elsevier, vol. 19(2), pages 89-97, March.
  15. Benjamin M. Blau & Bonnie F. Van Ness & Robert A. Van Ness, 2012. "Trade Size And Price Clustering: The Case Of Short Sales And The Suspension Of Price Tests," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 35(2), pages 159-182, 06.
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Citations

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Cited by:
  1. Fernando Palao & Ángel Pardo Tornero, 2012. "When size matters: Clustering in the European Carbon Market," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2012-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Narayan, Paresh Kumar & Smyth, Russell, 2013. "Has political instability contributed to price clustering on Fiji's stock market?," Journal of Asian Economics, Elsevier, vol. 28(C), pages 125-130.

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