IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/5374.html
   My bibliography  Save this paper

A Cross-Market Comparison of Institutional Equity Trading Costs

Author

Listed:
  • 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.

Suggested Citation

  • Louis K. C. Chan & Josef Lakonishok, 1995. "A Cross-Market Comparison of Institutional Equity Trading Costs," NBER Working Papers 5374, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5374 Note: AP
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w5374.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Marshall E. Blume & Michael A. Goldstein, "undated". "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.
    3. Grossman, Sanford J & Miller, Merton H, 1988. " Liquidity and Market Structure," Journal of Finance, American Finance Association, vol. 43(3), pages 617-637, July.
    4. 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.
    5. Neal, Robert, 1992. "A Comparison of Transaction Costs between Competitive Market Maker and Specialist Market Structures," The Journal of Business, University of Chicago Press, vol. 65(3), pages 317-334, July.
    6. 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 1147-1174, September.
    7. 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.
    8. Glosten, Lawrence R, 1989. "Insider Trading, Liquidity, and the Role of the Monopolist Specialist," The Journal of Business, University of Chicago Press, vol. 62(2), pages 211-235, April.
    9. Donald B. Keim & Ananth Madhavan, "undated". "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.
    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. Lee, Charles M C, 1993. " Market Integration and Price Execution for NYSE-Listed Securities," Journal of Finance, American Finance Association, vol. 48(3), pages 1009-1038, July.
    12. Madhavan, Ananth & Sofianos, George, 1998. "An empirical analysis of NYSE specialist trading," Journal of Financial Economics, Elsevier, vol. 48(2), pages 189-210, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    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 & Francis Journals, vol. 9(1), pages 37-51.

    More about this item

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5374. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.