Market impact costs of institutional equity trades

Jacob A. Bikker, Laura Spierdijk, Pieter Jelle van der Sluis

    Research output: Book/ReportReportProfessional

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    Abstract

    This paper is the first to analyze market impact and execution costs of equity trading by a pension fund. We find that, on average, these costs are nonnegligible. Average market impact costs equal 20 basis points for buys and 30 basis points for sells; average execution costs equal 27 basis points and 38 basis points, respectively. Furthermore, we show that relative trade size and market capitalization, commonly found to play an important role, have only limited influence on the market impact of a trade. The most important determinants of the price effect are momentum, stock price volatility, investment style, trade type (agency, single, or principal), and trading venue.
    Original languageEnglish
    Place of PublicationEnschede
    PublisherUniversity of Twente, Department of Applied Mathematics
    Number of pages40
    Publication statusPublished - 2004

    Publication series

    NameMemorandum / Department of Applied Mathematics
    PublisherDepartment of Applied Mathematics, University of Twente
    No.1725
    ISSN (Print)0169-2690

    Keywords

    • MSC-62J05
    • MSC-62P20
    • Market impact costs
    • Trading costs
    • Price effects
    • Institutional equity trading
    • Pension funds

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