Transaction Costs in an Illiquid Order‐Driven Market

17 Pages Posted: 5 Dec 2016

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: December 2016

Abstract

Transaction costs in many international equity markets are much larger than those in the USA. 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 frequently lower for larger trades, particularly in small stocks, 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

Suggested Citation

Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Transaction Costs in an Illiquid Order‐Driven Market (December 2016). Accounting & Finance, Vol. 56, Issue 4, pp. 917-933, 2016, Available at SSRN: https://ssrn.com/abstract=2879668 or http://dx.doi.org/10.1111/acfi.12127

Ben R. Marshall (Contact Author)

Massey University - School of Economics and Finance ( email )

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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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