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A Cross-Market Comparison of Institutional Equity Trading Costs

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Author Info
Louis K. C. Chan
Josef Lakonishok
Abstract

We compare execution costs (market impact plus commission) on the New York Stock Exchange (NYSE) and on Nasdaq for institutional investors. The differences in cost generally conform to each market's area of specialization. Controlling for firm size, trade size and the money management firm's identity, costs are lower on Nasdaq for trades in comparatively smaller firms. For the smallest firms, the cost advantage under a pre-execution benchmark is 0.68 percent. However, trading costs for the larger stocks are lower on NYSE. For the largest stocks, costs are lower by 0.48 percent on NYSE. Given the extreme difficulty of controlling for variables other than market structure, however, comparisons of costs should be interpreted with extreme caution.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5374.

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Date of creation: Dec 1995
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Handle: RePEc:nbr:nberwo:5374

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G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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.:

  1. Donald B. Keim & Ananth Madhavan, . "Execution Costs and Investment Performance: An Empirical Analysis of Institutional Equity Trades (Revised: 9-95)," Rodney L. White Center for Financial Research Working Papers 26-94, Wharton School Rodney L. White Center for Financial Research.
  2. Christie William G. & Huang Roger D., 1994. "Market Structures and Liquidity: A Transactions Data Study of Exchange Listings," Journal of Financial Intermediation, Elsevier, vol. 3(3), pages 300-326, June. [Downloadable!] (restricted)
  3. Grossman, S.J. & Miller, M.H., 1988. "Liquidity And Market Structure," Papers 88, Princeton, Department of Economics - Financial Research Center.
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  4. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-40, December. [Downloadable!] (restricted)
  5. Glosten, Lawrence R, 1989. "Insider Trading, Liquidity, and the Role of the Monopolist Specialist," Journal of Business, University of Chicago Press, vol. 62(2), pages 211-35, April. [Downloadable!] (restricted)
  6. Chan, Louis K. C. & Lakonishok, Josef, 1993. "Institutional trades and intraday stock price behavior," Journal of Financial Economics, Elsevier, vol. 33(2), pages 173-199, April. [Downloadable!] (restricted)
  7. Marshall E. Blume & Michael A. Goldstein, . "Displayed and Effective Spreads by Market (Revision of 4-92)," Rodney L. White Center for Financial Research Working Papers 27-92, Wharton School Rodney L. White Center for Financial Research.
  8. 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. [Downloadable!] (restricted)
  9. Lee, Charles M C, 1993. " Market Integration and Price Execution for NYSE-Listed Securities," Journal of Finance, American Finance Association, vol. 48(3), pages 1009-38, July. [Downloadable!] (restricted)
  10. Keim, Donald B. & Madhavan, Ananth, 1995. "Anatomy of the trading process Empirical evidence on the behavior of institutional traders," Journal of Financial Economics, Elsevier, vol. 37(3), pages 371-398, March. [Downloadable!] (restricted)
  11. Neal, Robert, 1992. "A Comparison of Transaction Costs between Competitive Market Maker and Specialist Market Structures," Journal of Business, University of Chicago Press, vol. 65(3), pages 317-34, July. [Downloadable!] (restricted)
  12. Madhavan, Ananth & Sofianos, George, 1998. "An empirical analysis of NYSE specialist trading1," Journal of Financial Economics, Elsevier, vol. 48(2), pages 189-210, May. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. C. V. Helliar, R. Michaelson, D. M. Power, C. D. Sinclair, 2000. "Using a portfolio management game (Finesse) to teach finance," Accounting Education, Taylor and Francis Journals, vol. 9(1), pages 37-51, March. [Downloadable!] (restricted)
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