Expected and Unexpected Cost of Trading in the Xetra Automated Auction Market

19 Pages Posted: 20 Feb 2002

See all articles by Pierre Giot

Pierre Giot

Facultés Universitaires Notre-Dame de la Paix (FUNDP)

Helena M. Beltran-Lopez

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Joachim Grammig

Eberhard Karls Universitaet Tübingen; Centre for Financial Research (CfR); Center for Financial Studies (CfS)

Date Written: February 2002

Abstract

In this paper, we propose measures for characterizing the expected and unexpected cost of trading that can be applied to analyze automated electronic auction markets. Using a unique database which contains the full state of the order book for three stocks (Daimler-Chrysler, Deutsche Telekom and SAP) traded on the XETRA platform, we show that the unexpected cost of trading, but not the expected cost of trading, can depend on international linkages of stock markets. Both measures also depend on structural characteristics of the exchange (time of day patterns). More precisely, the expected cost of trading increases strongly with the traded volume and is much higher at the start of the day. The unexpected cost of trading increases moderately with the traded volume, is much higher at the start of the day and increases sharply when pre-trading starts in the US markets.

Keywords: XETRA, automated auction market, market liquidity, trading risk, intraday data

JEL Classification: G10, G15, C10, C32

Suggested Citation

Giot, Pierre and Beltran-Lopez, Helena M. and Grammig, Joachim, Expected and Unexpected Cost of Trading in the Xetra Automated Auction Market (February 2002). Available at SSRN: https://ssrn.com/abstract=299619 or http://dx.doi.org/10.2139/ssrn.299619

Pierre Giot (Contact Author)

Facultés Universitaires Notre-Dame de la Paix (FUNDP) ( email )

Rempart de la Vierge 8
B-5000 Namur
Belgium

Helena M. Beltran-Lopez

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
1348 Louvain-la-Neuve, 1348
Belgium

Joachim Grammig

Eberhard Karls Universitaet Tübingen ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

HOME PAGE: http://www.uni-tuebingen.de/uni/wwo/Grammig/grammigeng.html

Centre for Financial Research (CfR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Center for Financial Studies (CfS) ( email )

Taunusanlage 6
Frankfurt/Germany, D-60329
Germany

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