Equity Trading by Institutional Investors: To Cross or Not to Cross

EFA 2002 Berlin Meetings Discussion Paper

23 Pages Posted: 5 Aug 2002

See all articles by Randi Naes

Randi Naes

Norwegian Ministry of Trade and Industry

Bernt Arne Ødegaard

University of Stavanger

Date Written: April 2005

Abstract

The proliferation of market places and trading methods is a striking feature of current equity markets. A stated goal of all the new trading arrangements is to reduce transaction costs. We investigate costs in one particular new market place, the crossing network. A crossing network is a satellite trading place; it uses prices derived from some primary market, and merely matches on quantity. Using special features of a data sample from a large institutional investor, we provide evidence that low measured costs in crossing networks are offset by substantial costs of non-trading. The costs of non-trading, which are related to adverse selection in the networks, are not reflected in standard measures of transaction costs.

Keywords: Costs of equity trading, Trading mechanisms, Alternative trading systems, Crossing networks, Institutional equity trading

JEL Classification: G10, G20

Suggested Citation

Naes, Randi and Ødegaard, Bernt Arne, Equity Trading by Institutional Investors: To Cross or Not to Cross (April 2005). EFA 2002 Berlin Meetings Discussion Paper. Available at SSRN: https://ssrn.com/abstract=302690 or http://dx.doi.org/10.2139/ssrn.302690

Randi Naes (Contact Author)

Norwegian Ministry of Trade and Industry ( email )

P.O. Box 8014 Dep
N-0030 Oslo
Norway
+47 22 24 04 34 (Phone)
+47 22 42 40 62 (Fax)

Bernt Arne Ødegaard

University of Stavanger ( email )

UiS Business School
Stavanger, NO-4036
Norway

HOME PAGE: http://www1.uis.no/ansatt/odegaard

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