On Linearity of Transaction Costs in Order Driven Market
25 Pages Posted: 23 Oct 2014 Last revised: 17 Feb 2015
Date Written: October 22, 2014
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: Suggested Citation