Trading Costs and Returns for Us Equities: The Evidence from Daily Data

NYU Stern School Department of Finance Working Paper

44 Pages Posted: 16 Jun 2003

See all articles by Joel Hasbrouck

Joel Hasbrouck

New York University (NYU) - Department of Finance

Date Written: February 3, 2005

Abstract

This study examines various measures of trading costs estimated from high-frequency data, the extent to which these measures can be estimated from daily data, and finally the relation between the daily-based proxies and stock returns (where trading cost is viewed as a characteristic). The high-frequency estimates of trading cost achieve partial agreement. Posted spreads and effective costs are highly correlated. Price impact measures and other statistics from dynamic models, however, are only modestly correlated with each other. Among the set of proxies constructed from daily data, a Gibbs estimate of the effective cost stands out, achieving a correlation of 0.944 with the corresponding TAQ estimate. Both the Gibbs estimate of effective cost and the illiquidity ratio covary positively with risk-adjusted returns, but the relations exhibit marked seasonality and are not robust to the use of alternative measures of correlation.

Keywords: Trading cost, effective cost, price impact, asset pricing, MCMC, spread, expected returns, Gibbs sampler, MCMC

JEL Classification: C15, G12, G20

Suggested Citation

Hasbrouck, Joel, Trading Costs and Returns for Us Equities: The Evidence from Daily Data (February 3, 2005). NYU Stern School Department of Finance Working Paper, Available at SSRN: https://ssrn.com/abstract=388360 or http://dx.doi.org/10.2139/ssrn.388360

Joel Hasbrouck (Contact Author)

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
MEC Suite 9-190, Mail Code 0268
New York, NY 10012-1126
United States
212-998-0310 (Phone)
212-995-4233 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,955
Abstract Views
7,009
Rank
15,471
PlumX Metrics