Measuring Institutional Trading Costs and the Implications for Finance Research PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Measuring Institutional Trading Costs and the Implications for Finance Research PDF full book. Access full book title Measuring Institutional Trading Costs and the Implications for Finance Research by Gregory W. Eaton. Download full books in PDF and EPUB format.
Author: Gregory W. Eaton
Publisher:
ISBN:
Category :
Languages : en
Pages : 63
Get Book Here
Book Description
Using proprietary institutional trade data, we construct a price impact measure that represents the costs faced by institutional investors. We show that many widely used liquidity measures do not adequately capture institutional trading costs. We then find that institutional trading costs are not dramatically impacted by decimalization, casting doubt on the widely used identification strategy that employs decimalization as an exogenous shock to liquidity, particularly institutional liquidity. Indeed, we find that conclusions from prior research are significantly altered when we measure liquidity using institutional trading data.
Author: Gregory W. Eaton
Publisher:
ISBN:
Category :
Languages : en
Pages : 63
Get Book Here
Book Description
Using proprietary institutional trade data, we construct a price impact measure that represents the costs faced by institutional investors. We show that many widely used liquidity measures do not adequately capture institutional trading costs. We then find that institutional trading costs are not dramatically impacted by decimalization, casting doubt on the widely used identification strategy that employs decimalization as an exogenous shock to liquidity, particularly institutional liquidity. Indeed, we find that conclusions from prior research are significantly altered when we measure liquidity using institutional trading data.
Author: Donald B. Keim
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This paper examines the empirical evidence on the cost of equity trades for institutional investors. There is considerable practical and academic interest in the measurement and analysis of trading costs. We discuss some of the results that emerge from the recent literature on institutional trading costs and augment those finding with new evidence from a large sample of institutional trades. The evidence we discuss includes: (i) implicit trading costs (such as the price impact of a trade and the opportunity costs of failing to execute) are economically significant relative to explicit costs (and relative to realized portfolio returns); (ii) equity trading costs vary systematically with trade difficulty and order placement strategy; (iii) differences in market design, investment style, trading ability, and reputation are also important determinants of trading costs; (iv) even controlling for trade complexity, there is considerable variation in trading costs across institutions; (v) accurate prediction of trading costs requires more detailed data on the entire order submission process, especially information on pre-trade decision variables such as the trading horizon. We also discuss the implications of equity trading costs for policy makers and investors. For example, the concept of quot;best executionquot; is difficult to measure and, therefore, enforce for institutional investors.
Author: François-Serge Lhabitant
Publisher: John Wiley & Sons
ISBN: 0470181699
Category : Business & Economics
Languages : en
Pages : 502
Get Book Here
Book Description
Brings together today's best financial minds across the world to discuss the issue of liquidity in today's markets. It is often proxied by trade-based measures (such as trading volume, frequency of trading, dollar value of shares trade, etc), order based measures and price impact measures.
Author: Gang Hu
Publisher:
ISBN:
Category :
Languages : en
Pages : 29
Get Book Here
Book Description
This paper shows that the widely documented buy-sell asymmetry in implicit institutional trading cost is mainly driven by mechanical characteristics of a specific class of measures: pre-trade measures. If a post-trade measure is used, the asymmetry is reversed in both rising and falling markets. Both pre-trade and post-trade measures are highly influenced by market movement, while during-trade measures are relatively neutral to market movement. We further show that a pre-trade measure can be decomposed into a market movement component and a during-trade measure, and empirically the market movement component is the dominant component. This paper demonstrates that simple mechanical characteristics of trading cost measures can have important implications for how we interpret empirical results.
Author: Chen He
Publisher:
ISBN:
Category :
Languages : en
Pages : 152
Get Book Here
Book Description
Author: Frank K. Reilly
Publisher:
ISBN:
Category : Institutional investments
Languages : en
Pages : 84
Get Book Here
Book Description
Author: Munhee Han
Publisher:
ISBN:
Category : Brokers
Languages : en
Pages :
Get Book Here
Book Description
This dissertation consists of two essays in financial economics. Two essays are in the areas of institutional investors and market mircrostructure. The first essay, included in Chapter 2, studies order submission strategies by institutional investors when trading on private information. By merging institutional daily transactions with original/confidential 13F filings, I separate informed trades from uninformed ones. Informed large orders tend to be split across more brokers and over more days. While same brokers tend to work uninformed large orders over multiple days, the brokers who facilitated early parts of broken-up informed orders rarely receive the remaining parts of the same orders on later days. Institutional investors also provide camouflage for their informed orders by mixing an informed order with other uninformed orders simultaneously sent to the same broker. As a result, a higher degree of shuffling a portfolio of orders is associated with a larger share of informed trading volume. The splitting and shuffling strategies designed to conceal informed trades from brokers and other market participants tend to lower institutional trading costs, especially on informed orders. The second essay, included in Chapter 3 and co-authored with Sanghyun (Hugh) Kim and Vikram Nanda, investigates how institutional brokerage networks of mutual funds can affect their trading performance, especially as measured by the return gap. We argue that institutional brokerage networks facilitate liquidity provision and mitigate price impact of large non-information motivated trades. Using commission payments, we map trading networks of mutual funds and brokers. We find central funds outperform peripheral funds, especially as measured by return gap. The outperformance is more pronounced when trading is primarily liquidity-driven. The centrality premium is strengthened by brokers’ incentives to generate greater revenues and their repeated interactions with funds. By merging daily transactions with quarterly holdings, we confirm that centrality premium is driven by reduced trading costs, rather than higher interim (intra-quarter) trading performance or profitable information from brokers.
Author: Hui Guo
Publisher:
ISBN:
Category :
Languages : en
Pages : 57
Get Book Here
Book Description
Although many studies show that the presence of institutional investors facilitates the incorporation of accounting information into financial markets, the evidence of informed trading by institutions is rather limited in the extant literature. We address these inconsistent findings by proposing PC_NII, percentage changes in the number of a stock's institutional investors, as a novel informed trading measure. PC_NII is better able to detect informed trading than are changes in institutional ownership (∆IO) -- the measure commonly used in previous studies -- because (1) entries and exits are usually triggered by substantive private information and (2) only a small fraction of institutions have superior information. As conjectured, PC_NII subsumes the information content of ∆IO and other institutional trading and herding measures in the forecast of stock returns, and its strong predictive power for stock returns reflects mainly its close correlation with future earnings surprises. We also show that PC_NII helps address empirical issues that require a reliable measure of institutional informed trading.
Author: Craig Holden
Publisher: Now Publishers
ISBN: 9781601988744
Category : Business & Economics
Languages : en
Pages : 90
Get Book Here
Book Description
We provide a synthesis of the empirical evidence on market liquidity. The liquidity measurement literature has established standard measures of liquidity that apply to broad categories of market microstructure data. Specialized measures of liquidity have been developed to deal with data limitations in specific markets, to provide proxies from daily data, and to assess institutional trading programs. The general liquidity literature has established local cross-sectional patterns, global cross-sectional patterns, and time-series patterns.
Author: Alex Frino
Publisher:
ISBN:
Category :
Languages : en
Pages : 27
Get Book Here
Book Description
This paper demonstrates that broker research and trade execution ability has a significant impact on the cost of institutional trading. The results reveal that there is significant variation in the ability of brokers to control execution costs. Trades executed by brokers with stronger research ability exhibit a higher permanent price impact while those executed by brokers with better execution ability exhibit a lower temporary price impact. Brokers are also found to specialise on an industry level which gives rise to variation in ability within a brokerage house.
