Transaction Costs in an Illiquid Order-Driven Market

27 Pages Posted: 23 Oct 2014

See all articles by Ben R. Marshall

Ben R. Marshall

Massey University - School of Economics and Finance

Nhut H. Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

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Date Written: October 21, 2014

Abstract

Transaction costs in many international equity markets are reported as being much larger than those in the U.S. This raises questions such as what trade size these reported trading costs relate to and whether investors can reduce trading costs by timing their trades. We show, using data from the order-driven New Zealand market that transaction costs are lower for larger trades and investors are able to reduce costs by timing their transactions. While investors who require immediate execution incur transaction costs that are much higher than reported average costs, patient investors can trade at much better rates.

Keywords: Liquidity, transaction cost, order splitting

JEL Classification: G11, G15

Suggested Citation

Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Transaction Costs in an Illiquid Order-Driven Market (October 21, 2014). Available at SSRN: https://ssrn.com/abstract=2512924 or http://dx.doi.org/10.2139/ssrn.2512924

Ben R. Marshall (Contact Author)

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Nhut H. Nguyen

Auckland University of Technology ( email )

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Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

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