Cheap versus expensive trades: Assessing the determinants of market impact costs

J.A. Bikker, L. Spierdijk, P.J. van der Sluis

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    Abstract

    This paper assesses the determinants of market impact costs of institutional equity trades, using unique data from the world's second largest pension fund. We allow the impact of trade characteristics and market conditions on trading costs to depend on the level of trading costs itself and establish significant differences in the responses of cheaper and more expensive trades. We explain the distinct responses from differences in information content and demand for liquidity between trades with high and low trading costs. Finally, to illustrate the practical relevance of the approach, we use our method to forecast future trading costs.
    Original languageUndefined
    Place of PublicationEnschede
    PublisherUniversiteit Twente, Faculteit Toegepaste Wiskunde
    ISBN (Print)0169-2690
    Publication statusPublished - 2005

    Publication series

    Namememorandum
    PublisherDepartment of Applied Mathematics, University of Twente
    No.1781
    ISSN (Print)0169-2690

    Keywords

    • MSC-91B28
    • METIS-225983
    • EWI-3601
    • IR-65965

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