On Linearity of Transaction Costs in Order Driven Market

25 Pages Posted: 23 Oct 2014 Last revised: 17 Feb 2015

See all articles by Nikolay Andreev

Nikolay Andreev

National Research University Higher School of Economics

Date Written: October 22, 2014

Abstract

We research the properties of implicit transaction costs function for general-shaped limit order book. Equivalent conditions for linearity of the function are presented in terms of market liquidity. We also present a suitable functional form of implicit costs for order-driven market on the Moscow Interbank Currency Exchange (MICEX), based on high-frequency trading data. The proposed form meets the definition of costs and implied properties while corresponding to the real form of order distribution.

Keywords: transaction costs, limit order book, trading volume, market microstructure, market liquidity.

JEL Classification: C60, G11, G17

Suggested Citation

Andreev, Nikolay, On Linearity of Transaction Costs in Order Driven Market (October 22, 2014). Higher School of Economics Research Paper No. WP BRP 38/FE/2014 . Available at SSRN: https://ssrn.com/abstract=2513850 or http://dx.doi.org/10.2139/ssrn.2513850

Nikolay Andreev (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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