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Transaction costs and institutional trading in small-cap equity funds

Author

Listed:
  • Carole Comerton-Forde

    (Faculty of Economics and Business, The University of Sydney, Australia, carole.comerton-forde@sydney.edu.au)

  • David R. Gallagher

    (School of Finance and Economics, University of Technology, Sydney, Australia)

  • Jumana Nahhas

    (Faculty of Economics and Business, The University of Sydney, Australia)

  • Terry S. Walter

    (School of Finance and Economics, University of Technology, Sydney, Australia)

Abstract

This paper examines the magnitude and determinants of trading costs for small-cap funds in Australia. The total price impact for these funds is 0.99% (—0.34%) for purchases (sales). This is considerably larger than costs reported in prior literature. Both purchases and sales exhibit price continuations after the trade package, consistent with an information effect. Although we do not observe the directional asymmetry typically shown in the literature, the magnitude of the total and permanent effects for purchases is larger than for sales. We also show that price impact is related to fund inflows and outflows.

Suggested Citation

  • Carole Comerton-Forde & David R. Gallagher & Jumana Nahhas & Terry S. Walter, 2010. "Transaction costs and institutional trading in small-cap equity funds," Australian Journal of Management, Australian School of Business, vol. 35(3), pages 313-327, December.
    • Handle: RePEc:sae:ausman:v:35:y:2010:i:3:p:313-327
    DOI: 10.1177/0312896210385284
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    References listed on IDEAS

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    7. Aitken, Michael & Frino, Alex, 1996. "Execution costs associated with institutional trades on the Australian Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 4(1), pages 45-58, May.
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    10. 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.
    11. Cong Chen & Carole Comerton-Forde & David R. Gallagher & Terry S. Walter, 2010. "Investment manager skill in small-cap equities," Australian Journal of Management, Australian School of Business, vol. 35(1), pages 23-49, April.
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    Cited by:

    1. Carole Comerton‐Forde & David R. Gallagher & Joyce Lai & Terry Walter, 2011. "Broker recommendations and Australian small‐cap equity fund management," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(4), pages 893-922, December.
    2. Brzeszczyński, Janusz & Bohl, Martin T. & Serwa, Dobromił, 2019. "Pension funds, large capital inflows and stock returns in a thin market," Journal of Pension Economics and Finance, Cambridge University Press, vol. 18(3), pages 347-387, July.
    3. Thanh D Huynh & Daniel R Smith, 2017. "Delisted stocks and momentum: Evidence from a new Australian dataset," Australian Journal of Management, Australian School of Business, vol. 42(1), pages 140-160, February.

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