Advanced Search
MyIDEAS: Login to save this article or follow this journal

Forecasting market impact costs and identifying expensive trades

Contents:

Author Info

  • Jacob A. Bikker

    (Supervisory Policy Division, Strategy Department, De Nederlandsche Bank, Amsterdam, The Netherlands)

  • Laura Spierdijk

    (Faculty of Economics and Business, Department of Economics and Econometrics, University of Groningen, Groningen, The Netherlands)

  • Roy P. M. M. Hoevenaars

    (Department of Quantitative Economics, Maastricht University, Financial and Risk Policy Department, ABP, Schiphol, The Netherlands)

  • Pieter Jelle Van der Sluis

    (Department of Finance and Financial Sector Management, GTAA Fund, ABP Investments, Vrije Universiteit Amsterdam, Schiphol, The Netherlands)

Abstract

Often, a relatively small group of trades causes the major part of the trading costs on an investment portfolio. Consequently, reducing the trading costs of comparatively few expensive trades would already result in substantial savings on total trading costs. Since trading costs depend to some extent on steering variables, investors can try to lower trading costs by carefully controlling these factors. As a first step in this direction, this paper focuses on the identification of expensive trades before actual trading takes place. However, forecasting market impact costs appears notoriously difficult and traditional methods fail. Therefore, we propose two alternative methods to form expectations about future trading costs. Applied to the equity trades of the world's second largest pension fund, both methods succeed in filtering out a considerable number of trades with high trading costs and substantially outperform no-skill prediction methods. Copyright © 2008 John Wiley & Sons, Ltd.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1002/for.1052
File Function: Link to full text; subscription required
Download Restriction: no

Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 27 (2008)
Issue (Month): 1 ()
Pages: 21-39

as in new window
Handle: RePEc:jof:jforec:v:27:y:2008:i:1:p:21-39

Contact details of provider:
Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Chan, Louis K C & Lakonishok, Josef, 1995. " The Behavior of Stock Prices around Institutional Trades," Journal of Finance, American Finance Association, vol. 50(4), pages 1147-74, September.
  2. Jacob A. Bikker & Laura Spierdijk & Pieter Jelle van der Sluis, 2004. "Market Impact Costs of Institutional Equity Trades," DNB Staff Reports (discontinued) 125, Netherlands Central Bank.
  3. Donald B. Keim & Ananth Madhavan, . "The Cost of Institutional Equity Trades," Rodney L. White Center for Financial Research Working Papers 8-98, Wharton School Rodney L. White Center for Financial Research.
  4. repec:fth:pennfi:68 is not listed on IDEAS
  5. Chan, Louis K C & Lakonishok, Josef, 1997. " Institutional Equity Trading Costs: NYSE versus Nasdaq," Journal of Finance, American Finance Association, vol. 52(2), pages 713-35, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jacob Bikker, 2013. "Is there an optimal pension fund size? A scale-economy analysis of administrative and investment costs," DNB Working Papers 376, Netherlands Central Bank, Research Department.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:jof:jforec:v:27:y:2008:i:1:p:21-39. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.