Trade size clustering and the cost of trading at the London Stock Exchange
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.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 27 (2013)
Issue (Month): C ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/620166|
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.:
- Christie, William G & Harris, Jeffrey H & Schultz, Paul H, 1994. " Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1841-1860, December.
- Laurie Simon Hodrick & Pamela C. Moulton, 2009. "Liquidity: Considerations of a Portfolio Manager," Financial Management, Financial Management Association International, vol. 38(1), pages 59-74, 03.
- Bessembinder, Hendrik & Kaufman, Herbert M., 1997. "A Comparison of Trade Execution Costs for NYSE and NASDAQ-Listed Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(03), pages 287-310, September.
- Gajewski, Jean-Francois & Gresse, Carole, 2007. "Centralised order books versus hybrid order books: A paired comparison of trading costs on NSC (Euronext Paris) and SETS (London Stock Exchange)," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2906-2924, September.
- Sylvain Friederich & Richard Payne, 2007.
"Dealer Liquidity in an Auction Market: Evidence from the London Stock Exchange,"
Royal Economic Society, vol. 117(522), pages 1168-1191, 07.
- Sylvain Friederich & Richard Payne, 2002. "Dealer liquidity in an auction market: evidence fom the London Stock Exchange," LSE Research Online Documents on Economics 24947, London School of Economics and Political Science, LSE Library.
- Richard Payne & Sylvain Friederich, 2002. "Dealer liquidity in an auction market: evidence fom the London Stock Exchange," FMG Discussion Papers dp427, Financial Markets Group.
- 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 1813-1840, December.
- 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.
- Finucane, Thomas J., 2000. "A Direct Test of Methods for Inferring Trade Direction from Intra-Day Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(04), pages 553-576, December.
- Riccardo Curcio & Charles Goodhart, 1991. "The Clustering of Bid/Ask Prices and the Spread in the Foreign Exchange Market," FMG Discussion Papers dp110, Financial Markets Group.
- Bessembinder, Hendrik & Venkataraman, Kumar, 2004. "Does an electronic stock exchange need an upstairs market?," Journal of Financial Economics, Elsevier, vol. 73(1), pages 3-36, July.
- Sopranzetti, Ben J. & Datar, Vinay, 2002. "Price clustering in foreign exchange spot markets," Journal of Financial Markets, Elsevier, vol. 5(4), pages 411-417, October.
- Alexander, Gordon J. & Peterson, Mark A., 2007. "An analysis of trade-size clustering and its relation to stealth trading," Journal of Financial Economics, Elsevier, vol. 84(2), pages 435-471, May.
- Narayan, Paresh Kumar & Narayan, Seema & Popp, Stephan & D'Rosario, Michael, 2011. "Share price clustering in Mexico," International Review of Financial Analysis, Elsevier, vol. 20(2), pages 113-119, April.
- Jiang, Christine X. & Kim, Jang-Chul & Wood, Robert A., 2009. "Adverse selection costs for NASDAQ and NYSE after decimalization," International Review of Financial Analysis, Elsevier, vol. 18(4), pages 205-211, September.
- repec:dau:papers:123456789/295 is not listed on IDEAS
- ap Gwilym, Owain & Verousis, Thanos, 2010. "Price clustering and underpricing in the IPO aftermarket," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 89-97, March.
- Bessembinder, Hendrik, 1997. "The degree of price resolution and equity trading costs," Journal of Financial Economics, Elsevier, vol. 45(1), pages 9-34, July.
- Moulton, Pamela C., 2005. "You can't always get what you want: Trade-size clustering and quantity choice in liquidity," Journal of Financial Economics, Elsevier, vol. 78(1), pages 89-119, October.
- Ahn, Hee-Joon & Cai, Jun & Cheung, Yan Leung, 2005. "Price clustering on the limit-order book: Evidence from the Stock Exchange of Hong Kong," Journal of Financial Markets, Elsevier, vol. 8(4), pages 421-451, November.
- Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415. Full references (including those not matched with items on IDEAS)