Search Costs and Investor Trading Activity: Evidence from Limit Order Books
AbstractIn this study, we analyze investor trading behavior based not on information-related assumptions but on the search model of Vayanos and Wang (2007). Our study shows that search cost dictates trading polarization across investors, firm size, and time of day. We find that individual investors prefer to trade at market open, while institutional investors trade more heavily near market close. Trading costs indicate that it is less costly for institutional investors to trade large cap stocks at market close than at open. Search cost is related significantly to order-based market liquidity measures depending on time of day, market capitalizations, and investor type.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.
Volume (Year): 48 (2012)
Issue (Month): 3 (May)
Contact details of provider:
Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024
execution cost; limit order book; liquidity; market depth; search model;
Other versions of this item:
- Lin, William & Tsai, Shih-Chuan & Sun, David, 2010. "Search costs and investor trading activity: evidences from limit order book," MPRA Paper 37284, University Library of Munich, Germany, revised Aug 2011.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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