Abstract

http://ssrn.com/abstract=1122931
 
 

References (31)



 
 

Citations (3)



 


 



Trading Frictions and Market Structure: An Empirical Analysis


Charlie X. Cai


University of Bradford - School of Management

David Hillier


University of Strathclyde - Department of Accounting and Finance

Kevin Keasey


University of Leeds - Division of Accounting and Finance

2007-09

Journal of Business Finance & Accounting, Vol. 35, Issue 3-4, pp. 563-579, April/May 2008

Abstract:     
Market structure affects the informational and real frictions faced by traders in equity markets. Using bid-ask spreads, we present evidence which suggests that while real frictions associated with the costs of supplying immediacy are less in order-driven systems, informational frictions resulting from increased adverse selection risk are considerably higher in these markets. Firm value, transaction size and order location are all major determinants of the trading costs borne by investors. Consistent with the stealth trading hypothesis of Barclay and Warner (1993), we report that informational frictions are at their highest for medium size trades that go through the order book. Finally, while there is no doubt that the total costs of trading on order-driven systems are lower for very liquid securities, the inherent informational inefficiencies of the trading format should not be ignored. This is particularly true for the vast majority of small to mid-size stocks that experience infrequent trading and low transaction volume.

Number of Pages in PDF File: 17

Accepted Paper Series





Date posted: April 22, 2008  

Suggested Citation

Cai, Charlie X. and Hillier, David and Keasey, Kevin, Trading Frictions and Market Structure: An Empirical Analysis (2007-09). Journal of Business Finance & Accounting, Vol. 35, Issue 3-4, pp. 563-579, April/May 2008. Available at SSRN: http://ssrn.com/abstract=1122931 or http://dx.doi.org/10.1111/j.1468-5957.2008.02076.x

Contact Information

Charlie X. Cai (Contact Author)
University of Bradford - School of Management ( email )
Emm Lane
Bradford, West Yorkshire Bd9 4JL
United Kingdom
David Hillier
University of Strathclyde - Department of Accounting and Finance ( email )
Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 330 4809 (Phone)
44 0141 330 4442 (Fax)
Kevin Keasey
University of Leeds - Division of Accounting and Finance ( email )
Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)
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