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Search Costs and Investor Trading Activity: Evidences from Limit Order Book

23 Pages Posted: 12 Mar 2012 Last revised: 26 Apr 2013

William T. LIn

Tamkang University - Banking & Finance

Shih-Chuan Tsai

National Taiwan Normal University

David S. Sun

Kai Nan University

Date Written: June 15, 2011

Abstract

We analyze in this study investor trading behavior based not on information related assumptions but on the search model of Vayanos and Wang (2007). Our study shows that search cost dictates trading polarization across investors, firm size and time of day. We find that individual investors prefer to trade at market open, while institutional investors trade more heavily near market close. Trading costs indicate that it is less costly for institutional investors to trade large cap stocks at market close than at open. Search cost is related significantly to order-based market liquidity measures depending on time of day, market capitalizations and investor type.

Keywords: Liquidity, search model, limit order book, market depth, execution cost

JEL Classification: C14, D82, D83, G12, L11

Suggested Citation

LIn, William T. and Tsai, Shih-Chuan and Sun, David S., Search Costs and Investor Trading Activity: Evidences from Limit Order Book (June 15, 2011). Emerging Markets Finance and Trade, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2019537

William T. LIn

Tamkang University - Banking & Finance ( email )

Department of Banking and Finance
Taiwan, 25137
Taiwan

Shih-Chuan Tsai

National Taiwan Normal University ( email )

No. 162, Section 1
Heping East Road
Taipei City, Da’an District 106
Taiwan

David S. Sun (Contact Author)

Kai Nan University ( email )

No. 1 Kai Nan Rd.
Lu Ju Township, Taoyuan County, 33857
Taiwan

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