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A Cross-Market Comparison of Institutional Equity Trading Costs

36 Pages Posted: 7 Jul 2000 Last revised: 24 Sep 2010

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Date Written: December 1995

Abstract

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.

Suggested Citation

Chan, Louis K.C. and Lakonishok, Josef, A Cross-Market Comparison of Institutional Equity Trading Costs (December 1995). NBER Working Paper No. w5374. Available at SSRN: https://ssrn.com/abstract=225437

Louis K.C. Chan (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-6391 (Phone)
217-244-3102 (Fax)

Josef Lakonishok

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-7185 (Phone)
217-244-3102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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