A Cross-Market Comparison of Institutional Equity Trading Costs
Louis K.C. Chan
University of Illinois at Urbana-Champaign - Department of Finance
University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)
NBER Working Paper No. w5374
We compare execution costs (market impact plus commission) on the New York Stock Exchange (NYSE) and on Nasdaq for institutional investors. The differences in cost generally conform to each market's area of specialization. Controlling for firm size, trade size and the money management firm's identity, costs are lower on Nasdaq for trades in comparatively smaller firms. For the smallest firms, the cost advantage under a pre-execution benchmark is 0.68 percent. However, trading costs for the larger stocks are lower on NYSE. For the largest stocks, costs are lower by 0.48 percent on NYSE. Given the extreme difficulty of controlling for variables other than market structure, however, comparisons of costs should be interpreted with extreme caution.
Number of Pages in PDF File: 36
Date posted: July 7, 2000
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