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Execution Costs of Small Retail Stock Investors

48 Pages Posted: 5 Mar 2015 Last revised: 26 Feb 2016

Menachem (Meni) Abudy

Bar-Ilan University - Graduate School of Business Administration

Avi Wohl

Tel Aviv University - Coller School of Management

Date Written: August 6, 2015

Abstract

A common assumption in the microstructure literature is that liquidity traders are not only informationless, but also impatient and naive in their trading. We focus on small retail stock investors (SRI) as a proxy for liquidity traders. We find that SRI are indeed informationless but not so impatient or naive. In half of the cases SRI use limit orders and more so for high-spread stocks. They also tend to act as "takers" when spreads are narrower than their average over time. Therefore, their execution costs (0.099%) are less than the half quoted spread (0.233%). Execution costs of sellers are larger than those of buyers and the stocks' execution costs are explained by their volume and return standard deviation.

Keywords: execution costs, trading costs, retail investors, liquidity

JEL Classification: G14

Suggested Citation

Abudy, Menachem (Meni) and Wohl, Avi, Execution Costs of Small Retail Stock Investors (August 6, 2015). Available at SSRN: https://ssrn.com/abstract=2573563 or http://dx.doi.org/10.2139/ssrn.2573563

Menachem (Meni) Abudy

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

Avi Wohl (Contact Author)

Tel Aviv University - Coller School of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 6409051 (Phone)

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