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What factors increase the risk of incurring high market impact costs?

Author

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  • Jacob Bikker
  • Laura Spierdijk
  • Pieter-Jelle van der Sluis

Abstract

This article applies quantile regression to assess the factors that influence the risk of incurring high trading costs. Using data on the equity trades of the world's second largest pension fund in the first quarter of 2002, we show that trade timing, momentum, volatility and the type of broker intermediation are the major determinants of the risk of incurring high trading costs. Such risk is increased substantially by either high or low momentum and by strong volatility. Moreover, agency trades are substantially more risky in terms of trading costs than similar principal trades. Finally, we show that the quantile regression model succeeds well in forecasting future trading costs.

Suggested Citation

  • Jacob Bikker & Laura Spierdijk & Pieter-Jelle van der Sluis, 2010. "What factors increase the risk of incurring high market impact costs?," Applied Economics, Taylor & Francis Journals, vol. 42(3), pages 369-387.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:3:p:369-387
    DOI: 10.1080/00036840701604461
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    Cited by:

    1. Jacob A. Bikker & Jeroen J. Meringa, 2022. "Have scale effects on cost margins of pension fund investment portfolios disappeared?," Applied Economics, Taylor & Francis Journals, vol. 54(39), pages 4501-4518, August.
    2. J.A. Bikker, 2013. "Is there an optimal pension fund size? A scale-economy analysis of administrative and investment costs," Working Papers 13-06, Utrecht School of Economics.
    3. Jacob A. Bikker, 2017. "Is THERE AN OPTIMAL PENSION FUND SIZE? A SCALE-ECONOMY ANALYSIS OF ADMINISTRATIVE COSTS," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 739-769, June.
    4. J.A. Bikker, 2013. "Is there an optimal pension fund size? A scale-economy analysis of administrative and investment costs," Working Papers 13-06, Utrecht School of Economics.

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